Trading Tips – 4 Advices That Will Help You
The year has just begun. We have all heard the projections from experts on what to expect in the new year. Many have said that the stocks will reach new highs while others have predicted doom. The fact is that nobody really knows what will happen this year. Even the most prominent investors and analysts don’t have an idea. The past year is a good proof that nobody really knows. Experts believed that Brexit won’t happen. It did. They predicted that Trump won’t win. He won. In this article, I highlight a few trading tips that will help in the beginning of the year.
#1 – Look for the Laggards
This is one of the most useful trading tips especially for the long-term traders. The idea is to buy companies that had a rough year in the previous year and short the best performing companies. In many cases, companies that perform really in a given year do not perform well in the following year. This is because of a number of reasons. One, the investors who led the companies higher sell the shares to take profits. Second, the companies get more focused by the media. As such, a simple mistake or miss in estimates lead to pessimism. On the other hand, companies that performed poorly in the previous year gain attention from investors looking for bargains. These companies end up performing well in the long run compared to the previous ones. Nike, which had the best year in 2015 performed dismally in 2016 as sales stagnated. Of course, this strategy will not always go right. Some companies have continued performing well for years. As a trader, your goal is to find the misfits and benefit from them.
#2 – Focus on your Strengths
As the year starts, you might be tempted to change your strategy to boost your returns. This might involve changing the stocks or currencies you trade. Transition can be a challenging thing in all things. It won’t be easy in this as well. The fact is that for you to be successful, you need to focus on your strengths. You also need to ignore the side-shows that might not add value to your trading. If you have been successful as a scalping trader, then focus on it. However, it is also important for you to experiment new strategies. The rule is that you should spend most of your time on what you know best and a small portion of it on learning new details.
#3 – A Long-Term View
Another thing you need to do as you start your year is to have a long-term view. This view will help you make better decisions for you trading career. A good example is what happened in 2016. At the first three days of trading, Asian shares fell by more than 10%. Investors and analysts predicted doom for the entire year. Hedge funds allocated their capital to short positions and exited previously held shares. The opposite happened. Shares in many countries reached their all-time high. Hedge funds reported weak performance during the year. Therefore, you should not let single events at the beginning of the year determine your trading thesis for the remaining part of the year.
#4 – Diversify
I believe in diversification. This is where you allocate your capital among different assets and asset classes. It also involves going long and short among different companies. The benefit of diversifying is that it helps you minimize risk. If company A falls by 10%, chances are that company B will not fall as much. There are chances that it will perform better. If you are a commodities trader, you can hedge your trades by using miners, retailers, and service providers.