Frequently Asked Questions

Market Lab Report
How do you identify "windows of opportunity" in the general market?

Q: Both of you freqently refer to the concept of “when the window of opportunity” is open in your book and this website. Could you elaborate more on this concept?

1. Define “window of opportunity” (I assume it is a smooth rally in the indices, but please confirm)

2. How do you know the window of opportunity is open in its early stages – it seems that it is more than just the Dr K market direction models saying to buy.

3. Based on your system, is the window of opportunity for long stocks open now (September 15, 2010) or you need more evidence (what what types of evidence you need?).


A: 1. Window of opportunity simply means that there is a constructive rally going on in the indices enabling us to well outperform the major averages.

2. In the early stages, we see evidence in the form of constructive price/volume action of leading stocks and major averages. The model usually signals a buy right around this time, though there are instances where it could be a bit late, where leading stocks start to break out even though the general markets are stalling, such as in late March/Early April 1996, when leading stocks started to break out, yet the model stayed on neutral, and the major averages went nowhere for a few weeks. In such a case, it is best to let the stocks tell you what to do, and start buying. The model is meant for making profits in ETFs, so individual stock selection can overrule the model in such circumstances.

Note, it is impossible to predict how long the window of opportunity will last. As the window opens, I have generally been able to go onto margin quite quickly, thus maximize my opportunity. When the window shuts, my sell stops take me out of my positions. The challenge is that it sometimes appears the window is opening when really, it's not, so I may take small losses in my account, thus the necessity of having proper stop losses on one's positions in case one is wrong, which can be fairly often. Even William O'Neil's best success rate is about 50% in a good market.

Ideally, a trader would learn to stay out of the market when conditions arent ideal, but this is easier said than done for both beginning and advanced traders. The market indeed is a lifelong challenge and as William O'Neil said himself, after more than 50 years trading the markets, he is still a student.

3. The window of opportunity has been slightly open since the model’s buy signal on September 1, 2010. It is not a vigorous rally we are seeing, but there are a few leading names that are outperforming the general markets. We have sent reports on many of these names that have shown buy points since September 1.

Published: Oct 3 2010