Through Marc Despallieres, Chief Strategy and Trading Officer at Vantage
Alfred Wainwright once said, “There is no such thing as bad weather, only improper clothing.”
It’s a good lesson to keep in mind as we stare into the barrel of winter in the northern hemisphere. It’s even better for day traders to remember as they face continued market volatility amid ongoing geopolitical instability, a global energy crisis, and the nosedive of the euro.
No, I’m not telling them to dress up. I tell them to prepare. Because there is no “bad market”, only an ill-prepared trader.
The thermal underlayer: sufficient resources
A bit like underwear, adequate resource endowment is the kind of base layer that all traders really should be wearing every day, but in times of market volatility it needs to be even thicker. Thermal, if you will.
There’s no shame in playing it safe, especially for those who are new to day trading. Studies show that 70-90% of day traders lose money initially.
Traders can do this in a number of ways; primarily by limiting their capital to what they can afford to lose. You can also spread risk by diversifying across at least two or three assets, positions and time horizons.
Successful traders don’t make decisions for emotional reasons. They should stick to set goals and not get carried away by the uptrend signals of the stock they are following.
Suit on: Research
You can’t just go outside in your underwear in winter. Likewise, traders cannot trade successfully in turbulent times without making significant investments in research to fill out the broader market context in which they operate.
Before traders begin, they need to understand the fundamentals of the market. Knowing what’s moving the markets can help them spot trends, generate trading ideas, and seize opportunities.
Before trading any instrument or asset, they should ensure they have done their due diligence to understand what triggers each movement. Learning to read charts and use technical analysis can also be beneficial when timing trade entry and exit points. Depending on your technical strategy, using appropriate technical indicators will improve entry and exit decisions. For example, the Relative Strength Index (RSI) serves as an indicator that checks the health of a stock.
Another important point of research is choosing the right platform – one that allows them to make and execute decisions quickly and accurately with minimal fees. Since most decisions are time sensitive, traders should look for platforms backed by brokers with deep liquidity pools.
Warm Pajamas: Do not leave open positions after the close of trading
You also need to be protected from the cold overnight. So it goes with traders and risks. Traders should consider closing all of their open positions on or before the end of the daily trading period as leaving them open overnight could expose them to potential risk and losses that may arise after the market closes.
Suppose a trader leaves an open position on shares of ABZ company. The company becomes embroiled in an unethical scandal and its share price plummets overnight. Their failure to exit this position at the end of their trading day could potentially land them a massive loss.
Umbrella: Stop Loss Orders
No matter how well dressed you may be, it always pays to have an umbrella handy as a first line of defense. No matter how solid the position one takes in a trade, the ideal is to always set a stop-loss order – a risk management tool that can reduce the loss a trader can suffer over a given period of time.
If you’re trading without stop-loss orders, you’re likely to face much larger losses when trades go wrong. In some cases, the losses can even exceed the invested capital.
Survive the colder months
Ultimately, it is not feasible for traders to shut up shop and hibernate during market volatility in hopes of calmer weather. With so many factors contributing to the turmoil, this could be the new normal for a long time.
Likewise, they should not blindly throw themselves into the blizzard. With a cautious, considered approach, traders can learn not only to weather the economic winter, but to stay ahead.
About the author:
Marc Despallieres is Chief Strategy & Trading Officer at Vantage – a global multi-asset brokerage headquartered in Sydney, Australia. Vantage offers a state-of-the-art platform for trading CFDs on Forex, Commodities, Indices, Shares, Cryptocurrencies and ETF. In his current role, Marc is instrumental in leading Vantage’s short- and long-term strategic initiatives and guiding the company on its ambitious expansion goals in emerging and developed markets. He has over 30 years of experience in the financial services industry, supporting banks, brokers and professional traders and connecting them with the most advanced technology, liquidity, brokerage infrastructure, clearing and services in the institutional trading market. Marc joined Vantage in August 2019 with plans to continually enhance Vantage’s product offering and encourage more innovation in customer experience and service excellence.
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