Trading with Charts for Absolute Return

BUY-AND-HOLD STRATEGIES

Investors no longer look only at the United States and Europe, but also at Asia, Eastern Europe, and South America for investments. Billions of dollars are going to those countries, which means they no longer support the stock markets in the United States or Western Europe. In 2007, the Shanghai Stock Exchange had a bigger volume than the Frankfurt Stock Exchange for the first time.

More and more investors try to tackle the problem by investing in guaranteed products. At least this solves the problem of risk control—as long as the issuer of these structured products does not go bankrupt. On the upside, the profit potential is much less than if the investor had invested in stocks—which means there is no such thing as a perfect world.

Long-only strategies did not perform as well anymore as they used to do in the last century. Between 2000 and 2010 many funds did not earn overall as much as the fixed interest rate.

As an option, investors might be much better off if they invest, as an alternative to long-only stock funds, either in ETFs or outright in options—call options if they believe the markets are going up and put options if they believe the markets are going down. Although the risk is limited to the option price, the chances of profit are almost as high as in the stock market if the trend direction is predicted correctly. Costs are extremely low, and the strategy is easy to understand.