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Someone suggested to me we could see the markets range trade for years – maybe 10 or a dozen years!
I am not one for going out so far in my outlook although I agree one should spend some time contemplating such a scenario. As if this was the case it does not matter what sort of investor you are – technical, fundamental, overseas shares, bonds, property or anything else you care to name – you will need a different strategy than you have used in the last ten years!
I don’t believe one should be paranoid about such a prospect but rather contemplate what impact it might have on your investing plans. At the other extreme one should consider that the threat of key European economies collapsing or the likes could be a mere furphy and good news is just around the corner. I am careful to be totally dismissive of any thought almost as ludicrous as it may be.
However let’s consider a market that range trades for an extended few years and what strategies could one adopt. I am going to deal only with technical strategies as beyond that it would take volumes more than my column would permit!
But let’s go to a chart:
click to enlarge
We have been range trading now for about a year as you can see from the above daily.
Let’s look at a weekly chart that covers the period before this year just gone by:
click to enlarge
You can see we had two periods of each about four years when our market range traded for an extended period.
So what options do you have? I wrote on this subject some months ago basically saying that it was time to brush up on some of the main range trading indicators - ADX, Bollinger Bands, CCI, MACD, RSI and Stochastic.
These can be studied in ProfitSource and other software and simply the idea is to buy at the low end of the indicator range and sell at the high end. But there are some special tricks so invest some time becoming acquainted!
Interesting times still ahead and great money to be made. I am getting set.
Enjoy the ride
Tom Scollon
Chief Analyst
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