SUCCESSFUL traders constantly learn and try to improve. The New Year is a great time to reflect on how you could erase some of your bad trading habits, and here are some pearls of wisdom from three respected traders.
There were periods of low volatility in 2012, making opportunities hard to find. As a result, many traders with itchy fingers panicked, and pounced on apparent opportunities that didn’t really exist. To avoid this, IG sales trader Will Hedden says that you should take a step back. “The market will still be there tomorrow”.
Hedden is resolved to read more regulatory news service (RNS) releases in 2013. The London Stock Exchange processed over 200,000 RNS announcements last year, and about 70 per cent of them were price sensitive. Reading RNS releases can help you to understand what factors will move the share prices of companies that you follow.
THE TREND IS STILL YOUR FRIEND
At times, the performance of equities can be detached from economic reality. But hedge fund manager Lex van Dam of Hampstead Capital says that you should still keep an eye on the real economy.
Given that the FTSE 100 is internationally focused, you could look to the FTSE 250 – which comfortably outperformed the FTSE 100 in 2012 – to find companies that are more in tune with the UK’s economic fundamentals.
However, the last couple of years have been characterised by risk-on/risk-off trading conditions, and you should keep an eye on where the money is actually flowing. Monitoring momentum indicators can help you to gauge this. As van Dam reminds us, “remember, the trend is your friend, and that won’t be any different in 2013”.
FORTUNE FAVOURS THE BRAVE
Even veterans need to evolve and adapt to changing conditions. City stalwart David Buik of Cantor, who has been in the markets for over five decades, laments that he missed most of the rally in bank stocks last year.
Although banks have been considered risky in recent times, some enjoyed a stellar 2012: Lloyds rocketed by over 90 per cent, and both Barclays and RBS rose by over 50 per cent. Buik says that he missed the rally because of his “misgivings about the extent of Europe’s brittle confidence”. The lesson is that you shouldn’t be overly sucked in by pessimism.
Buik agrees that momentum will be important in 2013. “The performance of equities will be based on trading momentum and improved confidence in the recovery process”. He asserts that, although markets will still be challenging this year, there will be plenty of opportunities.