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Wealth Management

HOW TO SUCCEED IN FINANCIAL TRADING

by Paddy Osborn, Academic Dean at London Academy of Trading

 

Trading financial markets is not easy – and anyone who claims that there are guaranteed profits just waiting to be claimed is simply not telling the truth. Successful trading requires hard work and commitment, but also a good understanding of financial markets and how they work.

 

There are many different ways to analyse markets for speculation. You can look at fundamentals, politics or macroeconomic data to make your decisions, or maybe analyse charts and technical indicators. Whatever tools you use, there are some simple rules that you should follow to enable you to be the best trader you can be.

 

Paddy Osborn

Firstly, work hard! As in any walk of like, the harder you work at a skill, the more proficient you become, and trading is no different. There’s no short-cut to becoming a consistently profitable trader. You need to acquire the relevant knowledge, learn the practical skills, and then practise applying them (ideally with some guidance from an experienced trader or mentor) on a demo account. Only once you have a structured process in place should you start trading with real money.

 

As you progress through your training, you will build self-confidence, which you will need to pull the trigger on your trades. Believe in yourself and your ability. Once you have taken the time to develop your trading strategy, you shouldn’t be afraid to take (controlled) risk in the markets. As your experience grows, you can use your successful trades to reinforce your self-belief.

 

It goes without saying that, in order to acquire the required knowledge and skills, you need education. It’s actually possible to get lucky and make money from trading without really knowing what you’re doing, but very very few people actually achieve this. Early success – perhaps due in a large part to luck – can actually be very damaging, since it tempts people to increase risk without control, and take short cuts instead of dedicating time and effort to get a proper education. Nobody – even clever people – can learn to become a successful trader over a weekend! You need to commit time and effort to learn the skills (and practise them) to recognise how to do things right.

 

As part of the learning process, a mentor can be an extremely valuable asset. There are thousands of hours of online videos explaining how to trade financial markets, but if you don’t get feedback on your trading as you start to apply your new-found skills, you could be applying the rules wrongly without even realising. You should find a role model or mentor whose advice you trust. Don’t just ask them for trade recommendations. Ask them about their trading process; how do they approach new trades, what rules do they follow, how and when do they enter the market. Getting feedback on your performance is one of the most efficient ways to identify your weaknesses and develop your skills as a trader.

 

Once you’ve developed the required skills and have started to trade, you need to take responsibility for your actions. Some traders are quick to brag about their good trades, while blaming their losses on bad luck or difficult markets, often seeing themselves as victims. All traders lose money from time to time – it doesn’t make you a bad trader. But if you blame “the market” for your losses, then you won’t be able to recognise your own failings. You need to be honest with yourself about your trading decisions. If you fail to accept responsibility for mistakes, then you’ll keep making the same mistakes time after time.

 

This leads to another rule – learn from your mistakes. Everyone makes mistakes, but successful traders learn from their mistakes and rarely repeat them. Losing money on a trade can be painful, so it’s human nature to try to minimise this pain by brushing these bad trades under the carpet. This is the worst thing you can do! You’ve paid out some money (by losing on the trade), so make sure to get some value from it. Go back and review each trade. Are you following your normal processes? Should you have taken the trade in the first place? Could you have avoided or reduced this loss? Would you do things differently next time? This five-minute review at the end of your trading day may be the most valuable five minutes of your day.

 

Aside from needing fundamental and technical knowledge, trading is also an emotional exercise. Failing to maintain psychological control is the number one reason that traders fail to perform to their potential. Internal pressure to succeed can add to this psychological pressure, so you should try to avoid setting purely monetary goals. If you fix a monetary target each day and your day starts badly, then this pressure mounts exponentially. Instead of setting monetary goals, you should set short, medium and long term process goals. These should be specific and achievable processes which you can execute through all situations. Also, make sure to track your progress against your specific goals, and remember to review your trades to check that you are maintaining your discipline and control. If you can stick to your process goals, then you’ll trade with discipline and the profits will come.

 

Finally, patience is a virtue. Deciding not to take a trade is still making a trading decision. Don’t just enter trades because you’re sitting at your desk and you feel you should be trading. The markets are not going anywhere, and there will always been opportunities in the future. Be patient and wait for the right opportunity. Successful traders have patience, and they understand that true success takes time to achieve.

 

Top 10

IS BITCOIN SET TO HAVE A 2017-STYLE MINI BOOM THIS YEAR?

Bitcoin’s price is set to “surge before the end of 2020” with investors keen not to “sleepwalk” through a 2017-style mini-boom, says the CEO of one of the world’s largest independent financial advisory and fintech organizations.

The prediction from Nigel Green, the deVere Group CEO and founder, which has $12bn under advisement, comes as Bitcoin – already one of the best-performing assets this year – appears to be on the brink of a bullish breakout.

In recent days, Square, which is owned by the billionaire founders of Twitter, has allocated 1% of its cash reserves to the cryptocurrency, whilst a former Goldman Sachs hedge fund chief says the price of Bitcoin will jump to $1m in five years.

Mr Green comments: “There’s been something of an avalanche of interest in Bitcoin in recent weeks from household-name investors.

“Investor activity is picking up considerably with various on-chain metrics and ongoing – and heightening – global political, economic and social turbulence suggesting that there will be a price surge before the end of the year.

“Like gold, Bitcoin can be expected to retain its value or even grow in value when other assets fall, therefore enabling investors to reduce their exposure to losses.
“Investors will increase exposure to decentralised, non-sovereign, secure digital currencies, such as Bitcoin, to help shield them from the potential issues in traditional markets”.

He continues: “There’s a growing sense that we’re set to experience a mini-boom similar to that at the end of 2017.

“Prices are yet to catch-up with investor interest – but this is only a matter of time as investors will not want to sleepwalk towards perhaps year-high prices in the run-up to the end of 2020.”

The late 2017 bull run saw the Bitcoin price reach its all-time high of $20,089.

The deVere CEO concludes: “There’s been a notable ramping-up of interest in Bitcoin amongst investors since the end of summer. Indeed, it has been the best performing week for one of the year’s best-performing assets since July.

“I can see no reason why this upward trajectory will not continue between now and the end of the year.”

 

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Wealth Management

HOW THE DEMOCRATISATION OF TRADING AND INVESTING CAN HELP INVESTORS

By Oleg Giberstein, Coinrule

 

Not long ago, I attended an event in the City of London. Suave bankers had come together for a discussion about Fintech. “Normal people should not be trading” was the general agreement in the group. With a slightly disgusted look on his face, one of them told me straight out: “these people don’t know what they are doing, they will just lose money if they get their hands into the market”. Given the track record of banks, this seemed slightly out of touch, but one way or another, the message was clear.

I am recounting this anecdote because it fits a narrative that has become widely accepted: ‘normal’ people are too stupid to make money investing. They should just put their funds into a so-called robo-advisor like Nutmeg or Wealthify which will put their hard-earned cash into index-tracking passive investment funds.

This investment approach looks backwards to a past when investing was for the elite only. However, today is different and investment is being democratised.

 

How can the everyday person get the most out of the markets?

Side-stepping Robo-advisors

Oleg Giberstein

Robo-advisors are a class of financial advisers that provide advice or investment management online with moderate to minimal intervention from humans. Their advice is based on mathematical rules or algorithms alone. And management fees can be 1% of your funds.

Although passive-investing has worked while the markets have been going up, this won’t go on forever. Michael Burry who predicted the Subprime Mortgage crisis which led to the financial crisis of 2008/09 has warned that Index Funds are the next big bubble.

Next Step:

With some research, anyone can create their own long-term, low-cost multi-asset fund held via a platform, with total costs below 0.5%. Explore platforms like eToro or IG Index to buy an index fund that holds a range of stocks directly, or create your own.

To spread your risk, pick stocks from different industries and decide what percentage of your portfolio you want to allocate. If that percentage becomes higher or lower, you can buy or sell to balance it out.

 

Having a strategy rather than chasing trends

When the dotcom Bubble (https://en.wikipedia.org/wiki/Dot-com_bubble) collapsed, those left holding worthless stocks were mostly the retail investors who’d gone for the ‘trend-of-the-day’. Today’s trend is passive investing into index funds.

Next Step:

I use a ‘Barbell strategy’ by keeping the majority of my funds in safe, liquid assets with only about 20% of my portfolio invested in high-risk high-reward assets, like cryptocurrencies or certain tech stocks.

Cash in a 0.1% rate savings account may not seem attractive, but having the majority of your money in cash, bonds, or gold means you’re protected. When others are in a panic and selling during a market crash you’ll have cash available to buy.

 

Using advanced trading tools

Robo-advisors give you average annual returns in normal times. But when times are bad, I wouldn’t want to be sitting in an index fund when everybody is trying to get out at the same time.

Those who get out first are the ones who won’t suffer. In March 2020, when markets dropped over 30%, Hedge Fund Pershing Square reported $2.6 billion in profits in less than a month.

Next Step:

Hobby investors tend to shy away from anything more complicated than buying and selling. However, a simple ‘Put’ option can act as an insurance that allows you to sell a certain financial asset at a predetermined price: perfect when you want to protect yourself against a market drop.

Automated trading rules allow hobby investors to use algorithms to trade like professionals. Platforms like Coinrule provide the tools to build strategies that protect against losses and help catch market opportunities. By designing and then automating the strategy you don’t need to sit by the computer all day. Innovation is starting to provide access to the markets for more and more people.

 

Learning is key

Most of the problems holding normal people back are related to access. Access to the right trading instruments, the right knowledge and the necessary experience. If you just put your money into a passive fund, you never learn and are forever victim to whatever crisis hits the market.

Next Step:

Study the markets. Books like “The Intelligent Investor” by Benjamin Graham “What I Learned Losing a Million Dollars” by Paul and Moynihan and others provide great introductions. Free resources and communities allow normal people to get up to speed quicker than ever.

 

Deciding for yourself

Platforms like Robinhood, Freetrade or Revolut have made waves in the retail online investing market. But they don’t go far enough when it comes to financial inclusion.

The need for a market that, at least has the potential for full transparency, fast learning and large opportunities, is there. Cool tech is making this a reality.

Next Step:

Do your own research. Learn to make your own judgements. Use the platforms and tools offering full transparency and which have the ethics you value. Companies like Luno, eToro, Coinrule, Kraken, and TradingView stand out as frontrunners in making exciting investment opportunities accessible to normal people.

Trading involves time and risk. However, with the tech now available opportunities abound for the non-professional. Democratisation is with us.

 

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