The Good-looking Flags Will Return!
Here’s the understatement of the year … you may have noticed that the markets have been somewhat volatile in the last couple of weeks.
You may also have noticed that I wrote a blog on 8 March this year entitled “More about flags and prognosis for 2008“, which included this particular passage:
“… I think this year will be a bumpy ride. Both the charts and my contacts on Wall Street are extremely bearish … in particular watch out for late summer / early autumn (you heard it here first!). All traders are going to have to be very prudent with the selection of trades, and that means you’re going to have to be patient, and vigilant … ”
These are indeed unusual times but as you can see from that March blog, this turbulence was telegraphed many months ago – this market fallout is no surprise. So here’s my next prognosis for the markets: They will return to normality in the coming weeks. Most of the time, markets trade”technically” and as Flag-Traders this suits us perfectly. That accounts for around 70% of the time. The other times the markets are dominated by news events. Typically these are corporate-inspired news events around the four earnings seasons. However, right now, we’re seeing wider economic and political events causing ripples in the corporate world on almost a daily basis. This isn’t normal, and believe me, it won’t last. So, you simply have to be patient and soon enough our flag patterns will return with a vengeance … and we’ll be waiting for them!
During the summer months many Flag-Traders took extraordinary profits and are now standing by, waiting for the next major opportunity. That’s exactly the way to do it. If the charts look ugly right now, that’s fine, just keep observing. They’ll return to normal soon enough. The quiet times are perfect for honing your strategy and ensuring that when normality returns you’re in the perfect position to take advantage. We happily trade pretty flag patterns around 70% of the time and we sit out the rest.
Trading is as much about when not to trade as it is when to trade. Do your learning now, because when the charts start revealing good-looking flags again it’ll be a bonanza for us, so make sure you’re ready by focusing on the technique and ensuring you know the difference between a great looking opportunity and an ugly chart.
All the best
Guy