How Many Opportunities In A Year?

opportunity streetHow Many Opportunities In A Year?

By Dave McLachlan

A friend of mine asked me a question the other day – “If it’s true that markets only trend up one third of the time, how many actual trading opportunities would we have in a year?”

This is a great question because most people, when they first start trading, believe they should be trading all the time, or every day.  It is a natural extension of having a job and working 8 hours or more a day for a paycheck – we think we have to be working for the money to be coming in, and with trading or investing this is not necessarily the case (depending of course on your trading plan).

But actual trading opportunities in a year?  The logical answer, if the opening statement is true would be 4 months worth of opportunities (one third of 12 months) – but the truth is that the entries will occur only once or twice in that period, before the market begins its trend and doesn’t look back.

Going Straight To The Source

So to find the true answer I went to the only place that could tell me – the market itself.  If we assume that the following is true:

1:  We can use the overall market as a barometer for which way we should be trading, and

2:  The market alternates between phases of trending and consolidation

Then I thought it was fair to check the All Ordinaries for how many times it trends over the course of a year.  I went back over the last 20 years on a (calendar) year by year basis.  I based a “Trend” on a simple trend line entry or exit signal (indicating a trend change) or a continuation pattern entry, on a daily chart of the XAO, where the trend went for more than 4 weeks (and was therefore not just “market noise”).

And here is what I found:

Year

Long Opportunities

Short Opportunities

1988

2

3

1989

2

2

1990

2

1

1991

3

0

1992

2

2

1993

2

0

1994

0

2

1995

3

0

1996

1

0

1997

3

2

1998

2

2

1999

3

1

2000

2

1

2001

2

1

2002

0

2

2003

3

1

2004

3

0

2005

3

1

2006

2

0

2007

3

2

2008

1

3

2009

2

1

 

As you can see, we have never had more than 3 long opportunities in a year.  Of course when the market is “long”, there are many different stocks that we could buy at the time – but our window of opportunity is relatively small.  If we are trading on a weekly chart it is even less, with an average of one long and one short opportunity a year.

Given that three out of four stocks will follow the trend of the overall market, it’s fair to say that 3 to 4 opportunities is the most we are going to get in a 12 month time frame.  If we are trading short as well, five opportunities was the most we had in any one year.

What Does This Mean For Me And How Can I Use It?

It means we have to be ready when opportunities arise.  To simply things here are four things to remember:

1:  Watch the index of the market you’re trading to see when stocks overall are ready to make a move. 

2:  Use your trading entry and exit rules on the index to give you specific signals if you like. 

3:  When the market moves, you move with it in that direction.

4:  Don’t force your trades.  If we get around 3 – 5 opportunities a year, it is ok at times not to be trading.

Trading is much easier when we are doing it in harmony with the overall market.  And this article proves that as traders or investors, we really do not have to be trading all the time.  In fact, with a maximum of only 5 “opportunities” a year, it is very easy to hold down a part time or even full time job, travel extensively, be there with family or work on a business at the same time.  A kind of freedom, if you will.  And that kind of life sounds pretty good to me.

.

. If you enjoyed this, subscribe and get the latest updates for free:

Enter Your Email Address:

.

(Check Your Junk Mail, Just In Case)

Popular Posts

September 3, 2009  Tags:   Posted in: Free Trading Course Lesson Backlog

Leave a Reply