By Marc Despallieres, Chief Strategy and Trading Officer at Vantage
Alfred Wainwright once said, “There’s no such thing as bad weather, only unsuitable clothing.”
It’s a good lesson to keep in mind as we in the northern hemisphere stare down the barrel of winter. It’s an even better one for day traders to remember as they face up to ongoing market volatility amidst continued geopolitical instability, a global energy crisis, and the nosediving euro.
No, I’m not telling them to rug up. I’m telling them to prepare. Because there’s no such thing as a ‘bad market’, just an underprepared trader.
The thermal under-layer: sufficient resourcing
A bit like underwear, sufficient resourcing is the kind of foundational layer all traders should really be wearing every day, but in periods of market volatility it needs to be even thicker. Thermal, if you will.
There’s no shame in playing it safe, especially for those still new to day trading. Studies show that 70-90% of day traders lose money when they first start out.
Traders can do this in a range of ways; first and foremost, by limiting their capital to only what they can afford to lose. They can also spread out 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 targets and avoid getting carried away by the upward trend of signals of the stock they are following.
Suit up: research
You can’t go outside in winter in just your underwear. Similarly, traders can’t trade successfully during turbulent times without significant investment in research to fill out the broader market context in which they are operating.
Before starting out, traders must gain an understanding of market fundamentals. Knowing what makes the markets move may help them identify trends, generate trade ideas and seize opportunities.
Before trading any instrument or asset, they should make sure they have done their due diligence to understand what makes each one move. Learning how to read charts and using technical analysis could also be beneficial when it comes to timing the entry and exit points of a trade. Depending on your technical strategy, using corresponding technical indicators improve entry and exit decisions. For example, the Relative Strength Index (RSI) serves as an indicator that checks for a stock’s health.
Another key piece of research is picking the right platform – one that will enable them to make and execute decisions quickly and accurately with minimal fees. Since most of decisions are time-sensitive, traders should look for platforms backed by brokers with deep liquidity pools.
Warm pyjamas: don’t leave positions exposed after trading hours
Even overnight, you still need to be protected from the cold. So it goes with traders and risk. Traders may want to consider closing all their open positions on or before the end of the day trading period, as leaving them open overnight may expose them to potential risks and losses that could incur after the market closes.
Let’s say a trader leaves an open position for ABZ company stock. The company gets involved in an unethical scandal and its stock price plummets overnight. Their failure to exit that position during the end of their trading day could possibly cause them a massive loss.
Umbrella: stop-loss orders
No matter how well-dressed you might be, it’s always worthwhile having an umbrella on hand as a first line of defence. Similarly, no matter how solid the position one takes in a trade, it is ideal to always set up a stop-loss order – a risk management tool which can reduce the loss a trader can suffer within any given period.
If they trade without stop-loss orders, they are likely to be exposed to much bigger losses if and when trades go wrong. In some cases, losses may even exceed invested capital.
Surviving the colder months
At the end of the day, it’s not viable for traders to shut up shop and hibernate throughout market volatility in hope of calmer weather on the horizon. With so many factors at play contributing to the turbulence, this could be the new normal for a long while to come.
Similarly, they shouldn’t throw themselves blindly into the blizzard. With a cautious, considered approach, traders can learn to not just survive the economic winter but come out on top.
About the author:
Marc Despallieres is Chief Strategy & Trading Officer at Vantage – a global, multi-asset broker headquartered in Sydney, Australia. Vantage provides 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 directing Vantage’s short and long-term strategic initiatives, and guiding the business in its ambitious expansion goals in both 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 to the most advanced technology, liquidity, brokerage infrastructure, clearing, and services in the market for institutional trading. Marc joined Vantage in August 2019, with plans to continually enhance Vantage’s product offerings and promote greater innovation in customer experience and service excellence.