The ultimate guide to trading in 2021
2020 was a wild and, in many ways, inexplicable year for the markets. The global pandemic introduced unprecedented chaos into our financial and political systems, yet the markets seemed relatively unaffected. If you were an experienced day trader last year, it was likely a very good year for you. So good, in fact, that 2020 inevitably peaked the interest of many observers and beginners who now want in on the action. Below is the ultimate guide to trading in 2021.
Make trades incrementally and over several time frames
If you are planning on actively trading, you have to be prepared to trade incrementally. Many people mistakenly think that a single buy and sale of an asset is what constitutes trading. There is essentially no strategy to this and doing so leaves you at the mercy of the markets and other investors.
Stake out your initial positions in an asset and then observe. You may find out that an opinion that initially led you to believe holding for the long-term was a good idea no longer holds true or there is a substantial market shift. If you are new to investing and are not yet comfortable with this more reactive, potentially higher-volume strategy, there are tools than can help you learn the markets without risking real money, wethrift offers good discounts and coupons on some of the top trading tools like trade-ideas.com.
Stay close to those highs
What convinces many people to avoid or stop investing is the idea of having to continually make up losses. This is because if you want to break even after a loss you have to make back twice as much. If you make sure you are always maintaining your accounts near the highs, however, you stand a much better chance of outperforming the market in the long run.
People are as focused on long-term buy and hold investing strategies because they allow you to compound your returns, which is why gurus like Warren Buffet favour them and have been so successful with them. But you can also achieve compound results if you maintain your accounts at highs and keep getting returns. You don’t need to hold a stock forever in the hopes that it will pay off in the long run and make you rich. If you aggressively trade with an eye to always finding the best deals, you can enjoy compound returns.
Don’t put too much stock in predictions
People make forecasts and predictions about the markets all the time because that is what investors want to hear. But if you want to better understand why predictions are unreliable, 2020 is a case in point. Nobody could have predicted a global health crisis, the worst peacetime economy in 100 years, a crazy political situation and to top it all off, a stock market that continued to soar despite the barrage of negative headlines.
You should be aware of the forecasts and predictions as part of your planning for future volatility, but it is how you react to changes on the ground that have the most significant impact on your investing success. Being ready and able to react quickly and decisively will help mitigate your losses and ensure you are taking advantage of upswings far better than blind faith in any predictions and prognostications.
Keep in mind that profits are sporadic
It is a platitude to say that markets are cyclical because of how undeniably true it is. The ups and downs are irregular and what is working now for traders is likely not going to be the optimal approach at some point in the future, and acknowledging this is half the battle as a trader. It is important to bear in mind the oft-touted 80-20 principle, which says that the majority of traders will make 80 percent of their profits in 20 percent of their trading time; for the remaining 80 percent there is little progress.
With that in mind, anyone trading in 2021, newcomers or experienced traders, should mentally prepare themselves for an end to the good times. Gains that were made in 2020 will be lost and then recouped again at a later date. Such is the life of a trader.
Stick to Your Charts
Charts are often brushed off as unnecessary and unhelpful by those who believe you can predict the outcome of macroeconomic forces, but they are ironically not seeing the bigger picture. Charts are useful for investors because they establish a framework for discipline. Charts are basically tools for helping you mitigate losses and maximizing profits.
A chart doesn’t need to be able to predict the future for it to be useful; if they help you effectively manage your trades then they are worth your time. Use charts in 2021 to help inform your buy and sell decisions, but don’t rely on them to predict the future.
Conclusion
Trading in 2021 will be interesting. The convergence of large and unpredictable economic forces, the beginning of the recovery in many places, and a stock market that is largely believed to be due for a plummet has investors in nervous anticipation. If you are just wading into the world of active trading, the coming year will likely be a trial by fire. Keep the above guide to trading in 2021 in mind and give yourself as much of a chance as you possibly can to beat the market and end 2021 on top.
