Technical Analysis: Chart Patterns

By Cory Janssen, Chad Langager and Casey Murphy

A chart pattern is a distinct formation on a stock chart that creates a trading signal, or a sign of future price movements. Chartists use these patterns to identify current trends and trend reversals and to trigger buy and sell signals.

In the first section of this tutorial, we talked about the three assumptions of technical analysis, the third of which was that in technical analysis, history repeats itself. The theory behind chart patters is based on this assumption. The idea is that certain patterns are seen many times, and that these patterns signal a certain high probability move in a stock. Based on the historic trend of a chart pattern setting up a certain price movement, chartists look for these patterns to identify trading opportunities.

While there are general ideas and components to every chart pattern, there is no chart pattern that will tell you with 100% certainty where a security is headed. This creates some leeway and debate as to what a good pattern looks like, and is a major reason why charting is often seen as more of an art than a science. (For more insight, see Is finance an art or a science?) 
There are two types of patterns within this area of technical analysis, reversal and continuation. A reversal pattern signals that a prior trend will reverse upon completion of the pattern. A continuation pattern, on the other hand, signals that a trend will continue once the pattern is complete. These patterns can be found over charts of any timeframe. In this section, we will review some of the more popular chart patterns. (To learn more, check out Continuation Patterns - Part 1, Part 2, Part 3 and Part 4.)

Head and Shoulders  This is one of the most popular and reliable chart patterns in technical analysis. Head and shoulders is a reversal chart pattern that when formed, signals that the security is likely to move against the previous trend. As you can see in Figure 1, there are two versions of the head and shoulders chart pattern. Head and shoulders top (shown on the left) is a chart pattern that is formed at the high of an upward movement and signals that the upward trend is about to end. Head and shoulders bottom, also known as inverse head and shoulders (shown on the right) is the lesser known of the two, but is used to signal a reversal in a downtrend.

Figure 1: Head and shoulders top is shown on the left. Head and shoulders bottom, or inverse head and shoulders, is on the right.

Both of these head and shoulders patterns are similar in that there are four main parts: two shoulders, a head and a neckline. Also, each individual head and shoulder is comprised of a high and a low. For example, in the head and shoulders top image shown on the left side in Figure 1, the left shoulder is made up of a high followed by a low. In this pattern, the neckline is a level of support or resistance. Remember that an upward trend is a period of successive rising highs and rising lows. The head and shoulders chart pattern, therefore, illustrates a weakening in a trend by showing the deterioration in the successive movements of the highs and lows. (To learn more, see Price Patterns - Part 2.)

Cup and Handle
A cup and handle chart is a bullish continuation pattern in which the upward trend has paused but will continue in an upward direction once the pattern is confirmed.

Figure 2

As you can see in Figure 2, this price pattern forms what looks like a cup, which is preceded by an upward trend. The handle follows the cup formation and is formed by a generally downward/sideways movement in the security's price. Once the price movement pushes above the resistance lines formed in the handle, the upward trend can continue. There is a wide ranging time frame for this type of pattern, with the span ranging from several months to more than a year. 

Double Tops and Bottoms
This chart pattern is another well-known pattern that signals a trend reversal - it is considered to be one of the most reliable and is commonly used. These patterns are formed after a sustained trend and signal to chartists that the trend is about to reverse. The pattern is created when a price movement tests support or resistance levels twice and is unable to break through. This pattern is often used to signal intermediate and long-term trend reversals.

 

Figure 3: A double top pattern is shown on the left, while a double bottom pattern is shown on the right.

In the case of the double top pattern in Figure 3, the price movement has twice tried to move above a certain price level. After two unsuccessful attempts at pushing the price higher, the trend reverses and the price heads lower. In the case of a double bottom (shown on the right), the price movement has tried to go lower twice, but has found support each time. After the second bounce off of the support, the security enters a new trend and heads upward. (For more in-depth reading, see The Memory Of Price and Price Patterns - Part 4.)

Triangles
Triangles are some of the most well-known chart patterns used in technical analysis. The three types of triangles, which vary in construct and implication, are the symmetrical triangle, ascending and descending triangle. These chart patterns are considered to last anywhere from a couple of weeks to several months.

Figure 4

The symmetrical triangle in Figure 4 is a pattern in which two trendlines converge toward each other. This pattern is neutral in that a breakout to the upside or downside is a confirmation of a trend in that direction. In an ascending triangle, the upper trendline is flat, while the bottom trendline is upward sloping. This is generally thought of as a bullish pattern in which chartists look for an upside breakout. In a descending triangle, the lower trendline is flat and the upper trendline is descending. This is generally seen as a bearish pattern where chartists look for a downside breakout.

Flag and Pennant
These two short-term chart patterns are continuation patterns that are formed when there is a sharp price movement followed by a generally sideways price movement. This pattern is then completed upon another sharp price movement in the same direction as the move that started the trend. The patterns are generally thought to last from one to three weeks.

Figure 5

As you can see in Figure 5, there is little difference between a pennant and a flag. The main difference between these price movements can be seen in the middle section of the chart pattern. In a pennant, the middle section is characterized by converging trendlines, much like what is seen in a symmetrical triangle. The middle section on the flag pattern, on the other hand, shows a channel pattern, with no convergence between the trendlines. In both cases, the trend is expected to continue when the price moves above the upper trendline. 

Wedge
The wedge chart pattern can be either a continuation or reversal pattern. It is similar to a symmetrical triangle except that the wedge pattern slants in an upward or downward direction, while the symmetrical triangle generally shows a sideways movement. The other difference is that wedges tend to form over longer periods, usually between three and six months.

Figure 6

The fact that wedges are classified as both continuation and reversal patterns can make reading signals confusing. However, at the most basic level, a falling wedge is bullish and a rising wedge is bearish. In Figure 6, we have a falling wedge in which two trendlines are converging in a downward direction. If the price was to rise above the upper trendline, it would form a continuation pattern, while a move below the lower trendline would signal a reversal pattern. 

Gaps
A gap in a chart is an empty space between a trading period and the following trading period. This occurs when there is a large difference in prices between two sequential trading periods. For example, if the trading range in one period is between $25 and $30 and the next trading period opens at $40, there will be a large gap on the chart between these two periods. Gap price movements can be found on bar charts and candlestick charts but will not be found on point and figure or basic line charts. Gaps generally show that something of significance has happened in the security, such as a better-than-expected earnings announcement. 

There are three main types of gaps, breakaway, runaway (measuring) and exhaustion. A breakaway gap forms at the start of a trend, a runaway gap forms during the middle of a trend and an exhaustion gap forms near the end of a trend. (For more insight, read Playing The Gap.)

Triple Tops and Bottoms
Triple tops and triple bottoms are another type of reversal chart pattern in chart analysis. These are not as prevalent in charts as head and shoulders and double tops and bottoms, but they act in a similar fashion. These two chart patterns are formed when the price movement tests a level of support or resistance three times and is unable to break through; this signals a reversal of the prior trend.

Figure 7

Confusion can form with triple tops and bottoms during the formation of the pattern because they can look similar to other chart patterns. After the first two support/resistance tests are formed in the price movement, the pattern will look like a double top or bottom, which could lead a chartist to enter a reversal position too soon. 



Rounding Bottom
A rounding bottom, also referred to as a saucer bottom, is a long-term reversal pattern that signals a shift from a downward trend to an upward trend. This pattern is traditionally thought to last anywhere from several months to several years. 

Figure 8

A rounding bottom chart pattern looks similar to a cup and handle pattern but without the handle. The long-term nature of this pattern and the lack of a confirmation trigger, such as the handle in the cup and handle, makes it a difficult pattern to trade.

We have finished our look at some of the more popular chart patterns. You should now be able to recognize each chart pattern as well the signal it can form for chartists. We will now move on to other technical techniques and examine how they are used by technical traders to gauge price movements. 

Read more: http://www.investopedia.com/university/technical/techanalysis8.asp#ixzz1Ve88rhRL

Technical Analysis: Chart Types

By Cory Janssen, Chad Langager and Casey Murphy

There are four main types of charts that are used by investors and traders depending on the information that they are seeking and their individual skill levels. The chart types are: the line chart, the bar chart, the candlestick chart and the point and figure chart. In the following sections, we will focus on the S&P 500 Index during the period of January 2006 through May 2006. Notice how the data used to create the charts is the same, but the way the data is plotted and shown in the charts is different.

Line Chart The most basic of the four charts is the line chart because it represents only the closing prices over a set period of time. The line is formed by connecting the closing prices over the time frame. Line charts do not provide visual information of the trading range for the individual points such as the high, low and opening prices. However, the closing price is often considered to be the most important price in stock data compared to the high and low for the day and this is why it is the only value used in line charts.

Figure 1: A line chart

Bar Charts The bar chart expands on the line chart by adding several more key pieces of information to each data point. The chart is made up of a series of vertical lines that represent each data point. This vertical line represents the high and low for the trading period, along with the closing price. The close and open are represented on the vertical line by a horizontal dash. The opening price on a bar chart is illustrated by the dash that is located on the left side of the vertical bar. Conversely, the close is represented by the dash on the right. Generally, if the left dash (open) is lower than the right dash (close) then the bar will be shaded black, representing an up period for the stock, which means it has gained value. A bar that is colored red signals that the stock has gone down in value over that period. When this is the case, the dash on the right (close) is lower than the dash on the left (open).

Figure 2: A bar chart

Candlestick Charts The candlestick chart is similar to a bar chart, but it differs in the way that it is visually constructed. Similar to the bar chart, the candlestick also has a thin vertical line showing the period's trading range. The difference comes in the formation of a wide bar on the vertical line, which illustrates the difference between the open and close. And, like bar charts, candlesticks also rely heavily on the use of colors to explain what has happened during the trading period. A major problem with the candlestick color configuration, however, is that different sites use different standards; therefore, it is important to understand the candlestick configuration used at the chart site you are working with. There are two color constructs for days up and one for days that the price falls. When the price of the stock is up and closes above the opening trade, the candlestick will usually be white or clear. If the stock has traded down for the period, then the candlestick will usually be red or black, depending on the site. If the stock's price has closed above the previous day’s close but below the day's open, the candlestick will be black or filled with the color that is used to indicate an up day. (To read more, see The Art Of Candlestick Charting - Part 1, Part 2, Part 3 and Part 4.)

Figure 3: A candlestick chart

Point and Figure Charts The point and figure chart is not well known or used by the average investor but it has had a long history of use dating back to the first technical traders. This type of chart reflects price movements and is not as concerned about time and volume in the formulation of the points. The point and figure chart removes the noise, or insignificant price movements, in the stock, which can distort traders' views of the price trends. These types of charts also try to neutralize the skewing effect that time has on chart analysis. (For further reading, see Point And Figure Charting.)

Figure 4: A point and figure chart

When first looking at a point and figure chart, you will notice a series of Xs and Os. The Xs represent upward price trends and the Os represent downward price trends. There are also numbers and letters in the chart; these represent months, and give investors an idea of the date. Each box on the chart represents the price scale, which adjusts depending on the price of the stock: the higher the stock's price the more each box represents. On most charts where the price is between $20 and $100, a box represents $1, or 1 point for the stock. The other critical point of a point and figure chart is the reversal criteria. This is usually set at three but it can also be set according to the chartist's discretion. The reversal criteria set how much the price has to move away from the high or low in the price trend to create a new trend or, in other words, how much the price has to move in order for a column of Xs to become a column of Os, or vice versa. When the price trend has moved from one trend to another, it shifts to the right, signaling a trend change.



Conclusion Charts are one of the most fundamental aspects of technical analysis. It is important that you clearly understand what is being shown on a chart and the information that it provides. Now that we have an idea of how charts are constructed, we can move on to the different types of chart patterns.

Read more: http://www.investopedia.com/university/technical/techanalysis7.asp#ixzz1Ve7buyxP

Technical Analysis: What Is A Chart?

By Cory Janssen, Chad Langager and Casey Murphy

In technical analysis, charts are similar to the charts that you see in any business setting. A chart is simply a graphical representation of a series of prices over a set time frame. For example, a chart may show a stock's price movement over a one-year period, where each point on the graph represents the closing price for each day the stock is traded:

Figure 1

Figure 1 provides an example of a basic chart. It is a representation of the price movements of a stock over a 1.5 year period. The bottom of the graph, running horizontally (x-axis), is the date or time scale. On the right hand side, running vertically (y-axis), the price of the security is shown. By looking at the graph we see that in October 2004 (Point 1), the price of this stock was around $245, whereas in June 2005 (Point 2), the stock's price is around $265. This tells us that the stock has risen between October 2004 and June 2005.

Chart Properties There are several things that you should be aware of when looking at a chart, as these factors can affect the information that is provided. They include the time scale, the price scale and the price point properties used.

The Time Scale The time scale refers to the range of dates at the bottom of the chart, which can vary from decades to seconds. The most frequently used time scales are intraday, daily, weekly, monthly, quarterly and annually. The shorter the time frame, the more detailed the chart. Each data point can represent the closing price of the period or show the open, the high, the low and the close depending on the chart used.

Intraday charts plot price movement within the period of one day. This means that the time scale could be as short as five minutes or could cover the whole trading day from the opening bell to the closing bell.

Daily charts are comprised of a series of price movements in which each price point on the chart is a full day’s trading condensed into one point. Again, each point on the graph can be simply the closing price or can entail the open, high, low and close for the stock over the day. These data points are spread out over weekly, monthly and even yearly time scales to monitor both short-term and intermediate trends in price movement.

Weekly, monthly, quarterly and yearly charts are used to analyze longer term trends in the movement of a stock's price. Each data point in these graphs will be a condensed version of what happened over the specified period. So for a weekly chart, each data point will be a representation of the price movement of the week. For example, if you are looking at a chart of weekly data spread over a five-year period and each data point is the closing price for the week, the price that is plotted will be the closing price on the last trading day of the week, which is usually a Friday.



The Price Scale and Price Point Properties The price scale is on the right-hand side of the chart. It shows a stock's current price and compares it to past data points. This may seem like a simple concept in that the price scale goes from lower prices to higher prices as you move along the scale from the bottom to the top. The problem, however, is in the structure of the scale itself. A scale can either be constructed in a linear (arithmetic) or logarithmic way, and both of these options are available on most charting services.

If a price scale is constructed using a linear scale, the space between each price point (10, 20, 30, 40) is separated by an equal amount. A price move from 10 to 20 on a linear scale is the same distance on the chart as a move from 40 to 50. In other words, the price scale measures moves in absolute terms and does not show the effects of percent change.

Figure 2

If a price scale is in logarithmic terms, then the distance between points will be equal in terms of percent change. A price change from 10 to 20 is a 100% increase in the price while a move from 40 to 50 is only a 25% change, even though they are represented by the same distance on a linear scale. On a logarithmic scale, the distance of the 100% price change from 10 to 20 will not be the same as the 25% change from 40 to 50. In this case, the move from 10 to 20 is represented by a larger space one the chart, while the move from 40 to 50, is represented by a smaller space because, percentage-wise, it indicates a smaller move. In Figure 2, the logarithmic price scale on the right leaves the same amount of space between 10 and 20 as it does between 20 and 40 because these both represent 100% increases.

Read more: http://www.investopedia.com/university/technical/techanalysis6.asp#ixzz1Ve7GnUJ1

Technical Analysis: The Importance Of Volume

By Cory Janssen, Chad Langager and Casey Murphy

To this point, we've only discussed the price of a security. While price is the primary item of concern in technical analysis, volume is also extremely important. 
What is Volume? Volume is simply the number of shares or contracts that trade over a given period of time, usually a day. The higher the volume, the more active the security. To determine the movement of the volume (up or down), chartists look at the volume bars that can usually be found at the bottom of any chart. Volume bars illustrate how many shares have traded per period and show trends in the same way that prices do. (For further reading, see Price Patterns - Part 3, Gauging Support And Resistance With Price By Volume.)  




Why Volume is Important 
Volume is an important aspect of technical analysis because it is used to confirm trends and chart patterns. Any price movement up or down with relatively high volume is seen as a stronger, more relevant move than a similar move with weak volume. Therefore, if you are looking at a large price movement, you should also examine the volume to see whether it tells the same story. 
Say, for example, that a stock jumps 5% in one trading day after being in a long downtrend. Is this a sign of a trend reversal? This is where volume helps traders. If volume is high during the day relative to the average daily volume, it is a sign that the reversal is probably for real. On the other hand, if the volume is below average, there may not be enough conviction to support a true trend reversal. (To read more, check out Trading Volume - Crowd Psychology.) 

Volume should move with the trend. If prices are moving in an upward trend, volume should increase (and vice versa). If the previous relationship between volume and price movements starts to deteriorate, it is usually a sign of weakness in the trend. For example, if the stock is in an uptrend but the up trading days are marked with lower volume, it is a sign that the trend is starting to lose its legs and may soon end. 



When volume tells a different story, it is a case of divergence, which refers to a contradiction between two different indicators. The simplest example of divergence is a clear upward trend on declining volume. (For additional insight, read Divergences, Momentum And Rate Of Change.) 

Volume and Chart Patterns 
The other use of volume is to confirm chart patterns. Patterns such as head and shoulders, triangles, flags and other price patterns can be confirmed with volume, a process which we'll describe in more detail later in this tutorial. In most chart patterns, there are several pivotal points that are vital to what the chart is able to convey to chartists. Basically, if the volume is not there to confirm the pivotal moments of a chart pattern, the quality of the signal formed by the pattern is weakened. 

Volume Precedes Price 
Another important idea in technical analysis is that price is preceded by volume. Volume is closely monitored by technicians and chartists to form ideas on upcoming trend reversals. If volume is starting to decrease in an uptrend, it is usually a sign that the upward run is about to end. 

Now that we have a better understanding of some of the important factors of technical analysis, we can move on to charts, which help to identify trading opportunities in prices movements. 


Read more: http://www.investopedia.com/university/technical/techanalysis5.asp#ixzz1Ve1IhLwY

Technical Analysis: Support And Resistance

 By Cory Janssen, Chad Langager and Casey Murphy

Once you understand the concept of a trend, the next major concept is that of support and resistance. You'll often hear technical analysts talk about the ongoing battle between the bulls and the bears, or the struggle between buyers (demand) and sellers (supply). This is revealed by the prices a security seldom moves above (resistance) or below (support).

Figure 1

As you can see in Figure 1, support is the price level through which a stock or market seldom falls (illustrated by the blue arrows). Resistance, on the other hand, is the price level that a stock or market seldom surpasses (illustrated by the red arrows). 

Why Does it Happen?
These support and resistance levels are seen as important in terms of market psychology and supply and demand. Support and resistance levels are the levels at which a lot of traders are willing to buy the stock (in the case of a support) or sell it (in the case of resistance). When these trendlines are broken, the supply and demand and the psychology behind the stock's movements is thought to have shifted, in which case new levels of support and resistance will likely be established. 

Round Numbers and Support and Resistance
One type of universal support and resistance that tends to be seen across a large number of securities is round numbers. Round numbers like 10, 20, 35, 50, 100 and 1,000 tend be important in support and resistance levels because they often represent the major psychological turning points at which many traders will make buy or sell decisions. 

Buyers will often purchase large amounts of stock once the price starts to fall toward a major round number such as $50, which makes it more difficult for shares to fall below the level. On the other hand, sellers start to sell off a stock as it moves toward a round number peak, making it difficult to move past this upper level as well. It is the increased buying and selling pressure at these levels that makes them important points of support and resistance and, in many cases, major psychological points as well. 

Role Reversal Once a resistance or support level is broken, its role is reversed. If the price falls below a support level, that level will become resistance. If the price rises above a resistance level, it will often become support. As the price moves past a level of support or resistance, it is thought that supply and demand has shifted, causing the breached level to reverse its role. For a true reversal to occur, however, it is important that the price make a strong move through either the support or resistance. (For further reading, see Retracement Or Reversal: Know The Difference.)

Figure 2

For example, as you can see in Figure 2, the dotted line is shown as a level of resistance that has prevented the price from heading higher on two previous occasions (Points 1 and 2). However, once the resistance is broken, it becomes a level of support (shown by Points 3 and 4) by propping up the price and preventing it from heading lower again. 

Many traders who begin using technical analysis find this concept hard to believe and don't realize that this phenomenon occurs rather frequently, even with some of the most well-known companies. For example, as you can see in Figure 3, this phenomenon is evident on the Wal-Mart Stores Inc. (WMT) chart between 2003 and 2006. Notice how the role of the $51 level changes from a strong level of support to a level of resistance.

Figure 3

In almost every case, a stock will have both a level of support and a level of resistance and will trade in this range as it bounces between these levels. This is most often seen when a stock is trading in a generally sideways manner as the price moves through successive peaks and troughs, testing resistance and support.



The Importance of Support and Resistance Support and resistance analysis is an important part of trends because it can be used to make trading decisions and identify when a trend is reversing. For example, if a trader identifies an important level of resistance that has been tested several times but never broken, he or she may decide to take profits as the security moves toward this point because it is unlikely that it will move past this level. 
Support and resistance levels both test and confirm trends and need to be monitored by anyone who uses technical analysis. As long as the price of the share remains between these levels of support and resistance, the trend is likely to continue. It is important to note, however, that a break beyond a level of support or resistance does not always have to be a reversal. For example, if prices moved above the resistance levels of an upward trending channel, the trend has accelerated, not reversed. This means that the price appreciation is expected to be faster than it was in the channel. 

Being aware of these important support and resistance points should affect the way that you trade a stock. Traders should avoid placing orders at these major points, as the area around them is usually marked by a lot of volatility. If you feel confident about making a trade near a support or resistance level, it is important that you follow this simple rule: do not place orders directly at the support or resistance level. This is because in many cases, the price never actually reaches the whole number, but flirts with it instead. So if you're bullish on a stock that is moving toward an important support level, do not place the trade at the support level. Instead, place it above the support level, but within a few points. On the other hand, if you are placing stops or short selling, set up your trade price at or below the level of support. 

Read more: http://www.investopedia.com/university/technical/techanalysis4.asp#ixzz1VdwWoBQm

Shield your portfolio from stock market falls

As turmoil in the markets continues, which assets should investors buy to avoid losses – or even make money?

How markets have fallen recently after a period of relative stability 

By Richard Evans

1:16PM BST 16 Aug 2011

8 Comments

Stock market crashes can be terrifying for investors – even when, as happened last week, they are followed by dramatic recoveries.

What can we do to make our portfolios less susceptible to these disasters? After all, we now have access to a huge range of assets that were previously hard for private investors to buy – gold and government bonds, for example, which you can own easily via exchange-traded funds.

With these options available, there's no longer any need to put all your money in a UK equity unit trust and simply hope for the best. Private investors can now build portfolios as diversified as those put together by the biggest fund managers. But what exactly should they buy? We asked some of the City's best asset allocators where they were putting their money to ride out the storm and even make money amid the turmoil.

Sebastian Lyon runs Troy Asset Management's multi-asset Trojan fund, and has built a reputation for being a defensive manager, able to protect investors' money in the most difficult trading conditions. He said: "Delegate to someone with experience of moving in and out of asset classes. If you're in a fund that is fully invested in shares all the time, you are going to go up and down with the market."

In line with this philosophy, Mr Lyon's fund, which aims for capital preservation and long-term growth, currently has just 35pc of the fund in equities. This is down from 75pc following the market crash in the wake of the collapse of Lehman Brothers in 2008.

RELATED ARTICLES

• Time for fear or greed as markets gyrate? 
  18 Aug 2011
• How investors can avoid another 'lost decade' 
  18 Aug 2011
• The psychology of investment: caution or risk? 
  19 Aug 2011
• Fund of funds sales hit record £3.8bn 
  16 Aug 2011
• Markets enter 'new danger zone' 
  14 Aug 2011
• A week that knocked the financial world off its axis 
  13 Aug 2011

"If the correction continues, high-quality firms with good dividend records and low debt will come down with the rest." He mentioned Unilever, GlaxoSmithKline, British American Tobacco, Nestlé and Sage, the software company, as examples that should be on investors' buy lists if prices fell.

Thirty per cent of the fund is in index-linked bonds issued by the British and US governments. This is because Mr Lyon believes the threat of inflation will continue to be a problem. "We think policy in Britain and America is very inflationary," he said, "and can see the danger with inflation at 5pc and interest rates at zero."

He added: "Conventional bonds don't insure you against this. So non-index-linked government bonds are very dangerous assets. However, index-linked ones do cover you to some extent." However, he said he hadn't bought index-linked bonds for three to four months because they had been "overbought" in the "flight to quality". But for retail investors NS&I index-linked certificates are a sensible alternative.

Mr Lyon has 20pc of the fund in gold and gold shares, saying that he "can't see gold going down very far".

"The environment is right for gold at the moment. We are long-term investors, buying on weakness rather than selling on strength." But he said he was avoiding miners, banks and cyclical sectors such as industrials, as well as property and corporate bonds.

Lord Rothschild, the chairman of RIT Capital Partners, the investment trust, said he had anticipated this kind of market turmoil and had already positioned the fund to withstand it.

"In June last year I said we had more to worry about than at any other time in my 50 years of working in the City," he said. In his recent annual chairman's statement he wrote: "The risks ahead are glaring and global." This week he reiterated that these risks remained. "Few people listened at the time – now they are," he said.

To reduce the trust's exposure to risk, he put about 10pc in gold, avoided being fully invested in equities but increased exposure to big, US-listed global stocks. "We'll stick with that," he said. "We are concerned about inflation over the longer term. We don't own any bonds."

David Stewart, the chief investment officer of the Butterfield Group, described the current market crash as a "nightmare". He said the bank was holding 50pc of a typical client's funds in equities, 40pc in fixed interest and 10pc in cash.

"We believe in winning by not losing – making sure we avoid those asset classes we think are going to fall," Mr Stewart said.

Among shares, he favoured "megacap blue chips" quoted in Europe or the US. "We like emerging markets as a growth area but would rather access them via Western companies.

"Which would you rather own for the next 20 years: bonds issued by indebted Western countries or Unilever, Nestlé, Proctor & Gamble and the like?" he asked, adding that he also favoured the big pharmaceutical firms and General Electric.

Some of his clients' money is also in equity income funds, such as Veritas Global Equity Income and Schroder Global Equity Income.

"We look for growing yields and well covered dividends. Income has become a more important part of the total return. By holding on to equities we are also not throwing away the chance of participating in the recovery when growth returns," he said.

Mr Stewart was not worried about inflation, for now at least. "At some point, inflation will be a problem – if not, all attempts to jump-start economies will have failed. But that's not where we are now; we are in the middle of the credit crisis of 2008-2015."

Fidelity's Richard Skelt, the co-head of investment solutions at the fund manager, said investors faced a difficult task in trying to build a portfolio that could cope with the market response to either inflation or low growth – it was still unclear which outcome the economy faced.

"There are two ways to deal with this uncertainty," he said. "Either you own an incredibly broad spread of assets to cope, or you take a view." The danger with the latter route is that if this view is wrong, your portfolio could be hammered.

He suggested balancing your portfolio between growth assets and those that do well in low inflation, while pointing out that liquidity was also really important. "Illiquid strategies became badly unstuck in 2008, so have a lot of assets that can give you the liquidity you need," he said.

Mr Skelt called the wisdom of owning government bonds yielding 3pc "highly questionable" but said investors had to be "really careful" when buying index-linked bonds. "They are among the asset classes that have most disappointed people. There are some technical factors at work so buy carefully.

"Over the long term we like emerging markets. Buying a broadly based emerging market fund probably makes sense, although it's likely to be volatile."

The Ruffer Investment Trust, which has an enviable record of capital preservation, held almost 30pc of its assets in index-linked bonds at the end of last month, with 25pc in Japanese equities. It held 16pc in British shares and 8pc in US equities, with smaller allocations elsewhere. It also owned 6pc in gold and 4pc in cash.

http://www.telegraph.co.uk/finance/personalfinance/investing/8698751/Shield-your-portfolio-from-stock-market-falls.html

Systematic and non-systematic risk

Applying lessons of high risk industries to healthcare

Qual Saf Health Care 2003;12:i7-i12 doi:10.1136/qhc.12.suppl_1.i7

• Article

Applying the lessons of high risk industries to health care

1. P Hudson

+Author Affiliations

1. Centre for Safety Research, Department of Psychology, Leiden University, Leiden, Netherlands

1. Correspondence to:
 P Hudson
 Centre for Safety Research, Department of Psychology, Leiden University, Leiden, Netherlands, PO Box 9555, 2300 RB Leiden, Netherlands;Hudson@fsw.leidenuniv.nl

Abstract

High risk industries such as commercial aviation and the oil and gas industry have achieved exemplary safety performance. This paper reviews how they have managed to do that. The primary reasons are the positive attitudes towards safety and the operation of effective formal safety management systems. The safety culture provides an important explanation of why such organisations perform well. An evolutionary model of safety culture is provided in which there is a range of cultures from the pathological through the reactive to the calculative. Later, the proactive culture can evolve towards the generative organisation, an alternative description of the high reliability organisation. The current status of health care is reviewed, arguing that it has a much higher level of accidents and has a reactive culture, lagging behind both high risk industries studied in both attitude and systematic management of patient risks

http://qualitysafety.bmj.com/content/12/suppl_1/i7.abstract

Basic needs and Lifestyle choices

Ronald Inglehart of the World Values Survey verbalized the above graph by stating that after meeting basic needs, lifestyle choices make up the majority of the difference in the GNP spectrum, and lower energy lifestyles do just about as well as high energy lifestyles (indeed, the USA uses 38 times the primary energy of the Phillipines but gets equivalent rankings of 'very happy' - any of you that have lived or worked abroad will intuit this).

Basic needs and Lifestyle choices

Ronald Inglehart of the World Values Survey verbalized the above graph by stating that after meeting basic needs, lifestyle choices make up the majority of the difference in the GNP spectrum, and lower energy lifestyles do just about as well as high energy lifestyles (indeed, the USA uses 38 times the primary energy of the Phillipines but gets equivalent rankings of 'very happy' - any of you that have lived or worked abroad will intuit this).

Risk versus Returns