10 June 2022
Life as a short-term/day trader has its ups and downs, but there are always opportunities to trade. It is how you react during the more difficult times that will make or break your career. As times get more challenging, it is easy to over-analyse your next investment. We know that 90% of traders will fail in the first few years due to various issues such as fear, greed and over-analysing relatively simple situations.
Suppose you see the stock market as an information exchange, where public and non-public information is mixed together. In that case, you will begin to understand the random nature of these financial beasts. For example, how often have you watched a stock, waiting to trade, only for it to move in the opposite direction?
As a short-term/day trader, you can maximise these "unexplained" moves to your benefit. Think in terms of market movements; get into the market psyche and how this may impact other investors. Don't overanalyse what you know, what you think and what you hope; listen to the market. Sometimes you will need to go against your philosophy and investment strategies, but 99 times out of a hundred, the market knows best.
Many short-term traders focus on emerging trends on the upside and the downside, ahead of company results. In the real world, such is the range of company profit forecasts from analysts, only a small number will be correct. Traders in their early days can spend hours, if not days researching one company, hoping to find that nugget of information everyone else missed. Listen to the market and save your time!
The journey and the anticipation of arriving at your holiday destination are often the pinnacle of the experience in real life. But, unfortunately, so high are your hopes that it is nigh on impossible for the holiday to live up to them. This is often reflected in the stock market, especially with short-term trading ahead of results.
In the UK, there tends to be an approximate six-week information vacuum between when a company's accounts are closed for the year, and the results are announced. You will often find information leaks into the market, and the shares begin to respond. As momentum picks up, other traders spot the changing trend. This upward movement in anticipation can become detached from reality. Consequently, if there has been a significant run ahead of the figures, the company will do well to match expectations, never mind beat them.
A mixture of traders bailing out, slight disappointment on overhyped expectations, and actual figures on which you can value the company can see a quick reversal in the share price.The journey was better than the arrival!
Rumours and counter rumours are the fuel which feeds the stock market. Whether on the upside or the downside, speculation and rumours can significantly impact share prices. In a similar fashion to "it's better to travel than arrive", many short-term traders will buy on the rumour and sell on fact. Until an expected announcement arrives, it is human nature to get carried away with expectations, dragging more and more traders into the upward spiral. Then, bang, the good news is announced, everything is in the open, and it is often time to sell.
Short-term/day traders will bail out and make a profit, and trend traders will seek to reduce their holdings, which can create momentum on the downside. Overbought positions can quickly become oversold positions, creating more opportunities for day traders. Life is never dull!
As a forward-thinking broker, here at Global Investment Strategy Limited, we are constantly investing in the latesttechnology and dealing platforms. Continually striving to balance cutting-edge trading facilities and a competitive charging structure, this allows traders, often trading on relatively thin margins, to maximise their gains.
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