Financial Times Guide to Technical Analysis

9

Booms and busts: risks and returns

What topics are covered in this chapter?

In this chapter, we are going to define the most basic cycle in the simplest terms and discuss the risks and rewards associated with buying and selling at each phase of the cycle. We will discuss the reward/risk ratio at:

• the accumulation phase
• the uptrend phase
• the distribution phase
• the downtrend phase.

What are the objectives?

• To determine the appropriate action (buy or sell) at each phase.
• To determine the reward/risk ratio of the action at the phase.

Introduction

There are patterns and trends in the markets. The markets move in cycles as we have seen in the up waves and the down waves. It has been observed time and again that after a period of high, the ...