Return Free Risk

Forge 'return free risk' which is the fear traders always have, we seem to be having risk free returns with the FTSE hitting highs. From a technical charting perspective, it is rare for the FTSE fail to fall on a 'MACD bearish divergence' - but it has done just that - wrong-footing many including yours truly.

So that raises a couple of issues. How do you ensure when the market goes against your position you are not left sitting ugly? Or put another way how do you hedge your risk?

First, ensure your positions are not all in the same direction. For instance if you were 'long' FTSE, BA, ICI, BAT then you are making a one way bet on the markets - that is higher risk than enforcing a discipline of saying you will look for 4 stocks as the best 'long' prospects and 4 stocks as the best 'short' prospects.

That way if the market goes through a bearish ugly phase you are still making money. The problem is most people do not realize how to go 'short'; that is make money from falling prices by selling first, then buying back more cheaply later.

Of course spreadbets and CFDs are one way to do it. Of course presently a lot of the market rises are due to takeover bids and speculation. Those in the rumour or reality spin cycle include: Manchester United (he'll get it - eventually), easyJet (not close yet), Mulberry (nope - now or never and the family behind it probably won't want to exit when someone wants to buy. It's going through a good faddish phase, it like Filofax many moons ago, which is why a bid is now or never).

Also, if you would like a free multi-media CDROM on 'Investing Better', which covers momentum indicators like the MACD, posted to you then drop me an email with your postal address to alpesh@tradermind.com.

It's useful to know the leading sectors presently - given we're one month into the year. Steel is still leading. Construction is close behind, up 12%. The leading stocks in the past month (and arguably likely to continue their trend) include Gleeson, Montpellier, Bovis - amongst others.

Spreadbetters

Spreadbetters and futures traders often look at hard and soft commodities. Here's my quick take on the action for the week ahead :

• Oil: Mixed
• Copper: Mixed to lower
• $/£: Mixed to lower
• Dow: Higher
• Gold: lower
• FTSE 100: Higher