As stocks like Apple hit new highs – the Covid pandemic notwithstanding – traders are pouring into online trading as a way to supplement their incomes.
The Nasdaq is trading at all-time highs and the Dow Jones Industrial Index is near all-time highs.
This might seem irrational given the devastation wrought by global lockdowns, but investors are betting that the world economy will stage an aggressive rebound.
Traders are continually on the hunt for volatility. For many years they plied their craft in the forex market, then volatility died in the post-Brexit world (though it has returned in recent weeks).
Rules: You need to be looking at a 2:1 ratio of wins to losses. In other words, look to make twice as much in profit as you are willing to lose. This means you need to determine what level of profit you are willing to take. This is known as a ‘take profit’ level, which can be preprogrammed into your trading account. At the same time, you should set a ‘stop loss’ level – which is the level at which you exit a trade should it go against you.
Why traders lose: They start fiddling with their take-profit and stop-loss levels. This is particularly true of trades that go against the trader. They tend to extend the stop-loss level in the hope that a losing trade will eventually reverse and turn profitable. The problem with this is that losing trades, left to run their course, can eventually wipe out your account. It’s better to acknowledge the loss and exit when it hits your stop-loss levels.
Educate yourself: CM Trading has a vast library of online training tools to show you how to properly set up a trade, and where to set your take-profit and stop-loss levels.
Copy trading: For those who don’t have the time and inclination to study trading, ‘copy trading’ is an option. This allows you to mimic the trades of successful and experienced traders. This is a free service at CM Trading, and you can review the history and track record of a variety of traders and their strategies, and then decide if this is for you. Once you decide to jump in, the trades can be fully automated.
Which is better – forex, indices, equities, commodities, cryptos? There’s no easy answer to this. Each market has different dynamics. Gold and precious metals have been roaring ahead this year, oil has been subdued (though with pockets of volatility, which traders love), and equities have recovered strongly since the Covid crash in March. There has been an exceptional opportunity for profits in each of these asset classes. Bitcoin and other cryptos have also been on a magnificent ride and are now seen as safe haven assets at a time of reckless government financial behaviour.
How much do I need to start trading? At CM Trading, you need $250 (about R4 100) to open an account. This is the minimum, but it would be better to start with $1 000-$2 000, which gives you sufficient headroom to grow.
Open an account with a regulated broker: One of the benefits of choosing an SA-based broker is that it falls under the Financial Sector Conduct Authority (FSCA) which provides a level of comfort and regulatory oversight for South Africans. CM Trading is regulated by the FSCA.
Warren Buffet has exited many of his stocks and invested heavily in Barrick Gold. Is this a good time to buy gold? Buffett is backing Barrick because he saw an opportunity for growth in this particular gold stock. That said, a good argument can be made to include gold as a commodity in any portfolio as a hedge against inflation and uncertainty.
Is it true that most traders lose? There is some European research to suggest that most traders do lose. What’s more interesting is to explore the reasons for this. Those who lose tend to deviate from their own trading plan (by, for example, letting their losses run, and taking profits too quickly). This is more of a lack of experience. On the other hand, there are traders who have been around 20 and even 30 years, learning from their mistakes and rather consistently making profits. No one is going to get it right all the time. Stick to your trading plan, exit your losing trades timeously (at your predetermined stop-loss level) and aim to make double what you are willing to lose on a trade.
Brought to you by CM Trading.