Last week I was in Malaysia speaking at the Asian Traders and Investors Convention and I have to say I was I surprised that many of the attendees had little or no knowledge yet they were attempting to trade highly leveraged markets such as futures and currencies. Now it would seem logical to me, given the current market conditions, that traders and investors would be erring on the safe side and looking to invest in the largest and safest shares, but this was not the case.
Unfortunately the same is occurring in Australia, with many traders taking very high risks trading markets they shouldn’t or attempting to get into the market based on the perception that shares are cheap when in fact they are still falling. I have said it before and I will say it again – it is critical, more now than ever, to be educated in the mechanics of the market if you want to survive.
Over the next two years our market will be volatile and at times unpredictable, and I firmly believe only the educated will profit. The lack of knowledge over the past two years has cost ordinary Australian’s tens of thousands of dollars and in some cases millions. Sadly many will do nothing about it, preferring instead to gamble with their money, when the solution is really quite simple. There is an old saying that ignorance is expensive, and this has certainly been the case over the past two years. Gaining a solid education, however, will cost far less and yield much better returns over the longer term.
So what can we expect in the market?
The Australian market has now been rising for eight days, but before we get too excited, it is important to remember that the market also rose for eight days in January before falling heavily over the next 11 days. The difference on this occasion is that volume has also risen with 30 to 100 per cent more volume being traded than was the case in January.
Given that increased volume is supporting the current up move I believe this is the start of the rise up into May or June that I have been expecting. That said given that the market has been rising for eight days we need to expect that it will fall away for a short period before rising once again. Therefore do not be surprised if the All Ordinaries Index falls away in the next week to find support at or around 3250 points, after which we should see it rise up and present some great buying opportunities.
Unless investors are buying the top 10 shares and holding them for 10 years, they should take a shorter term outlook, implement a staged approach to investing their money, and use stop losses at all times. Failure to use stop losses in the current market will ultimately result in increased risk and potential losses.