Trading equities: Why patience might pay off

Tom Welsh talks with IG’s chief market strategist David Jones about the recent stock market rally, why timing is everything, and what you can expect from City A.M.’s Active Trader Conference this June

You’ll be speaking at this year’s City A.M. Active Trader Conference about short-term equities trading. What will your discussion cover and what insights do you expect to offer?

There is a misconception among many people that trading has to be all about jumping in and out of the FTSE many times a day to try and snatch a few points of profit. While you can, of course, trade this way, you don’t have to. It is perfectly sensible – particularly in stock markets that have seen such strong trends for many months now – to look to run positions for days, weeks or even months. For those many people who can’t watch screens all day long – and sensibly don’t want to – this is the right strategy when it comes to trading. So I am going to expand on techniques to do this, and will explain why having a more relaxed approach to the markets can result in a better chance of profitability.

You’ve written before about how better technology and a faster news cycle have allowed traders to take more active control of their investments. How should they make the most of the trend?

We have all become more aware of financial markets in recent years thanks to the ease of accessing information via the internet, but also due to the financial crises we’ve experienced. It’s fantastic that we all have this breaking news at our fingertips, but I think it’s important that we use it sensibly rather than become a slave to every minute movement in the markets. Although we have greater access than ever before, markets are still the same – they go up, down and sideways. So it is still important to have a disciplined and calm approach, and to look to ride major trends without being swayed too much by every individual piece of breaking market news.

What difficulty does the year’s equity market boom pose for short-term traders, and how can they adapt their strategies to the bull market? 

This year has been a somewhat peculiar market for equities and indices. We have seen a relentless uptrend so far, with few corrections along the way – quite different to the nervous choppy markets we had got used to during the Eurozone crises. It has been a great time for the buy and hold investor, but definitely a little trickier for the short-term trader. The temptation is to try and call a turning point, and I would bet that many fingers have been burnt trying to call the top in the likes of the FTSE and the Dow. It’s a cliché, but we should all try and trade with the obvious trend – buying weakness would have yielded good profits this year. Of course, all of this is much easier said than done, but we should remember the futility of trying to fight a major trend. It’s much easier to try and time opportunities to jump on board.

Which companies have found interest among IG clients recently? How does trading stocks differ from trading broad indices?

It tends to be the larger blue chips that attract the most attention. However, because IG quotes down to a market cap of £10m, there are still plenty of fans of the smaller, more speculative shares. Those trading shares tend to have a more relaxed approach than those trading indices. With individual equities, clients are more disposed to running the trades for longer and looking for the bigger move – an approach that has been perfectly sensible and profitable in the rising stock markets we have seen for much of the last 10 months or so.

You’ll also be taking part in a discussion on forex trading at City A.M’s Active Trader conference. How do the equity and forex markets differ, and how should traders approach them differently?

I think forex markets and indices like the Dow and the FTSE, for example, are fairly similar in terms of their characteristics and why they appeal to clients. The main difference is volatility. Even on a quiet day, it is not unusual to see a move of 50 points or more for a forex pair like sterling-dollar. These sorts of moves are the appeal of forex. But they can also be the undoing of those who are trying it for the first time, getting stopped out of trades just because a market is chopping around in this sort of range. I think it is important to give the market time to prove you right. Don’t set stop losses that are too tight, and trade small so that your risk per trade is low and you can get a feel for how these markets can move.

What is the most important lesson you’ve learnt in your trading career so far? And do you have any advice for novice traders?

I think patience is important – a trait that may not come naturally to many of us. Just because you have decided that it is time for a market to move, don’t necessarily think the market has come around to that way of thinking just yet. What are the chances the market starts the move a few seconds after you have opened your trade? I think the temptation in the beginning is also to place very tight stop losses, and the problem here is that you are going to get stopped out on just market noise. It’s unlikely you have nailed to the second the time the market is about to move, so give it time and space to try and work out in your favour.

David Jones is chief market strategist at IG. He will be speaking at this year’s City A.M. Active Trader conference on 21 June 2013 at the Grange Hotel, Tower Bridge, London E1 8GP. Tickets are available for only £65 at