How to Successfully Navigate the Markets in BeyondPart I

Well, it happened again! At the end of February, 2007, the market experienced another precipitous drop when it was least expected. And in many cases, it did great damage to trading and investment portfolios across the country and the world. Thankfully, this kind of market shock does not happen often, but it happens often enough to require a defensive strategy to deal with it the next time it happens. And it will happen again and again, possibly again this year, but certainly in the years to come. What is your #1 concern or question about trading the markets in 2007? How can I forecast such events like the big market drop last week? How do I know when the bear move will end? How far will the market drop? Is this a temporary move down in a bull market, or is this the beginning of a new bear market? How can I minimize my losses? What defensive strategies can I use in markets like this? How can I manage risk exposure? Interestingly, I received these same questions from traders all over the world - the United States, Australia, the United Kingdom, India, Canada, even Malaysia.

The point here is that no matter where you are in the world or what market you trade, you tend to have the same concerns on how to deal with these issues. And that is because all markets are subject to this same behavior that was just experienced in the U.S. and China. The Really Good News My intent from the beginning was to write a brief report to help traders not only survive, but actually prosper when the market takes a hit. But after pouring through all these questions, I was inspired to take this report even further and to expose some of the actual strategies that, if used properly, have the potential to make even big dips in the market not so much of a big deal.

I also noticed something that didn't really surprise me? the "traders" that are the most confused about what to do when the markets take a hit are the ones that don't follow a complete trading method. Interestingly, I didn't receive many questions at all from my students who are trading with a complete method. So with that in mind, let's get into some excellent strategies that will help you weather dips and bumps in the markets. But here's my disclaimer: These strategies do not make up a complete trading method, so be sure to use them as a part of whatever your current trading method is.

And if you don't currently have a complete method, you should find one immediately and study it thoroughly before placing another trade. False Beliefs But before I do, I want to address some false beliefs that work against us as traders. As many of your questions implied, many of you believe that the market is or should be forecastable, meaning that the sudden drop that just occurred in late February was knowable in advance and that the savvy trader could have taken steps to avoid losses. On the contrary, I believe very strongly that the market is unforecastable and that no technical or fundamental analysis exists that is capable of such a forecast that could be used successfully by a trader.

This is a very important point to clear up right at the outset of this report - relying on forecasts, or gurus, or technical indicators will not adequately forewarn of a precipitous drop. Just look at what just happened in February, and how about the collapse of the NASDAQ beginning in 2000. The experts were of no help forewarning traders of these events. In fact, just a week before the February drop, several commentators where out there forecasting that the Dow would rise by more than 12% in 2007. That may well happen, but such a forecast is of no use to us traders in the here and now real world of trading. Another false belief is that trading and market analysis must be complex.

I believe that nothing could be further from the truth. In fact, I have found over the years that the more complexity I built into my trading strategies, the less effective they were. What To Do So you might be thinking at this point that you understand how a simple approach can be better but if the markets are unforecastable, what is a trader to do? Well, just because the markets are unforecastable doesn't mean that we cannot use technical analysis to determine the prevailing market trend and then construct a trading strategy to trade within that trend being ever mindful that the trend could abruptly change at any time. What this all boils down to is that we need a way to manage risk when trading the markets that does not depend upon forecasts, analysts, gurus, the media, etc.

While no risk management technique can assure profits or the avoidance of losses, I believe it is possible for a prudent trader to follow a simple but powerful strategy that will dramatically improve the results that that trader would have otherwise achieved. Good trading, Bill Poulos p.s. If you'd like to download this entire article, just go to To Be Continued in Part II.

Bill Poulos has been trading the markets since 1974. He's a retired automotive executive who holds a bachelor's degree in Industrial Engineering, and a Master's degree in Business Administration, with a major in Finance. In his over 30 years of trading experience, Bill has developed dozens of trading systems and methods. In 2001, he formed Profits Run, Inc. to impart his trading experience and wisdom to others so they could shortcut their learning curve and ultimately potentially skyrocket their earnings in the markets. Bill now has thousands of students all around the world, from all walks of life, and at all experience levels. He prides himself on providing honest and realistic trading education, and is known for the continuous and ongoing support and follow-up he offers his students.


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