Get Smart with a Solid Stocks Trading Education
2020 has come and gone. The Queen of England would likely call it an ‘Annus Horribilis’ and that’s certainly not a stretch of the imagination. European markets have been particularly hard-hit for the YTD (December 21, 2020). The German DAX is up 2.34%, but all other European bourses are underwater. The EuroStoxx 50 PR is down 6.11%, the CAC 40 index is down 8.20%, the FTSE 100 index is down 13.89%, and the Ibex 35 index is down 16.93%. US markets, like Asia Pacific markets, defy expectations. The S&P/TSX Composite Index is up 2.43%, the New York Stock Exchange composite index is up 4.17%, the Dow Jones Industrial Average is up 6.06%, the S&P 500 index is up 15.16%, and the NASDAQ composite index has completely outperformed expectations with a whopping 42.92% YTD appreciation.
These numbers, impressive though they may be, could turn on a dime. In fact, that’s pretty much what happened in March 2020 when global markets went into freefall following news of the coronavirus pandemic. Many industry sectors were particularly hard hit, including energy stocks, leisure stocks, travel and tourism, food and beverage, entertainment-related industries, et al. Noteworthy among the biggest losers were airlines, cruise ship companies, energy and mining operations, and the big hotel chains. An interesting analytic was posted on November 23, 2020 by the Statista Research Department. According to the data, the percentage of adults investing money in the stock market in 2020 in the United States was measured at 55%. That is consistent with 2017, 2018, and 2019 figures, despite the massive economic slowdown in 2020.
Huge Influx of Retail Traders to Online Trading Platforms in 2020
The data is consistent with market reports indicating a huge influx of new traders, with popular trading platforms and online brokerages. The likes of Robinhood, E*TRADE, Charles Schwab, TD Ameritrade, Fidelity, and StocksToTrade have seen a dramatic uptick in the number of traders registering in 2020. The democratization of online trading is perceived to be a catalyst to swelling numbers of traders hitting the scene. The trading industry has heretofore been the exclusive domain of institutional brokerages, fund managers, and trading consultants. Now that anyone can effectively dabble in the financial markets, buy stocks, sell stocks, and profit from rising and falling prices, it’s anybody’s domain.
FinTech has advanced rapidly in recent years, allowing for widespread access to online financial services, online trading, and instant funds transfers. Power has been wrested away from bricks and mortar institutions and their top-heavy structures, in favor of online trading platforms and brokerages which allow instant access to the financial markets from PC, Mac, or mobile devices. While this widespread liberalization of the financial markets has its merits, it comes with heavy responsibilities. Traders who simply dabble in stocks, willy-nilly, without conducting due diligence do so at their own peril. Stock trading is like playing with a proverbial loaded gun – if you don’t know what you doing, you may just shoot yourself in the foot.
How to Get an Effective Day Trading Education?
The biggest mistake made by novice traders is trading blind. Low-cost stocks or high-cost stocks say nothing about the viability of the stock in question, or whether you can expect any movement in the stock price as a day trader. A good trading education begins with an understanding of what it is that you are trying to do. Day trading by definition is the buying and selling of stocks within the course of a trading day. In other words, all positions must be closed within the day, before the market closes. It is possible for a day trader to hold a position overnight, or longer, but this is the exception to the rule. Trading stocks for a living is entirely possible once you have mastered market fundamentals and the correlations between market elements.
Day trading activity is best conducted with an actionable plan in mind. Traders are encouraged to understand the underlying financial instruments that will be traded. Whether it’s tech stocks, industrials, textiles, travel and tourism, or biopharmaceuticals, it’s always best to trade a stock that you follow, and understand. As your experience of stocks trading improves, you can expand into other types of classes, sectors, or industries. Start small, and gradually build your way up to a bigger portfolio of day trading stocks. Incremental gains are preferred over outsized gains. It’s difficult to manage a handful of stocks, let alone several dozen stocks as a day trader, without sophisticated tools and resources such as stocks screeners, trading bots and applications, and the like.
Understanding Market Mechanics is The Bedrock of Your Day Trading Regimen
A rudimentary understanding of economics is a solid foundation upon which to build an in-depth education of stocks trading. For example, what factors drive stock prices higher? Generally, bullish sentiment can be expected if the underlying technical and fundamental elements of that stock are sound. Stronger than expected earnings performance (earnings per share) will naturally help to boost a stock’s price. Likewise, positive public reaction to a company’s products and services bodes well for increased interest and investment in the stock. If high-level companies show an interest in a low-cap company stock, and wish to initiate a buyout, that will have a positive impact on the price of the stock.
On the reverse side, an earnings miss, bad press, or better alternative products and services will naturally cause the stock to tank. While many traders try to find linear correlations between market variables and stock prices, oftentimes these interrelationships are obtuse at best. It is impossible to say with any degree of certainty for example that the price of gold will increase if stock prices decline, or that a depreciation in the relative value of the dollar (US dollar index) will cause increased demand for gold. While oil prices may fall, that does not necessarily translate into increased productivity and profitability for companies around the world. Conventional economic theory serves as the bedrock against which hypotheses can be formulated, but there are no true absolutes in the market.
Day trading features a set of safeguards to help traders. These include stop loss and take profit orders, among others. By pre-setting trailing stop loss percentages or dollar-denominated set values, it is possible to limit overall risk and maximize reward. Naturally, day traders are encouraged to heed the advice of trading aficionados, by following sound trading principles. Foremost among them is removing emotion from all trading decisions. After all, day trading is not about sentiment, it’s about knowledge-based decision-making. Set targets, stick to them, and move on to the next trade.
- A Brief Overview of What Swing Trading Is and How It Works
- Get a Trading Education & Start Making Money from Home
- Five Effective Trading Strategies for the Rookies
- The Future of Automated Trading in Forex
- Starting a Home-Based International Trading Business (Part 2)