10 Trading Tips For 2021
Seeking Alpha Analyst Since 2019
Summary
- Follow COVID-19 Developments Carefully.
- Diversify Your Investments.
- Issue Stop Loss and Take Profit Orders with Every Position.
- Use Consistent Trading Timeframes.
- Bet on Industries, Not Specific Companies.
2020, without a doubt, has been one of the craziest years for traders in history. Not only was the volatility index consistently trending at an all-time high, but the continually evolving events related to the COVID-19 outbreak caused markets around the world to become even more difficult to predict.
The year, in general, was characterized by an intense market plunge in March, followed by a shaky (but continual) recovery over the next eight months. By the end of November, the Dow Jones Industrial Average (DJIA) was trading above 30,000 for the first time and even alternative wealth vehicles, such as Bitcoin, were also reaching new highs.
While volatility creates risk for traders, it also creates plenty of great opportunities for entry. Over the course of the pandemic, both experienced traders and newly interested beginners were able to increase their holdings on many occasions. As a result of both this newfound wealth and a desire to earn some additional income, many people that once held very little interest in developing a trading strategy are now entering and exploring new markets for the very first time.
If you are one of the many traders that are hoping to capitalize on what is likely to be a very explosive 2021, it will be important to develop a plan in advance. In this article, we will discuss nine of the most useful trading tips for you to use in this upcoming year. By taking the time to put these words of advice into action, you’ll position yourself to take advantage of this volatile market and steadily increase your wealth.
1. Follow COVID-19 Developments Carefully
The COVID-19 outbreak, without a doubt, influenced the market’s performance in 2020 far more than anything else. Every time an event has indicated the recovery might accelerate—such as the debut of a new vaccine—the market has experienced a sharp upward tick, whereas every time an event has suggested the recovery will lengthen—such as rising case numbers—the market has dropped. While the situation will indeed be a bit different in 2021, it is clear that following related developments will be crucial for anyone hoping to find profitable trading opportunities.
2. Diversify Your Investments
Diversification is the surest way to reduce risk as a trader. Making an active effort to ensure that your wealth is spread across multiple different securities, multiple different security classes, and multiple different industries. Investing in a wide-reaching index fund is an excellent method for quickly diversifying. Index fund trading helps traders enjoy the general growth of the market without needing to worry about how a particular stock is performing.
3. Issue Stop Loss and Take Profit Orders with Every Position
Stop loss and take profit orders are some of the most useful tools a trader can begin to use. A stop-loss order triggers a sell as soon as a security drops to a certain level and a take profit order—the exact opposite—triggers a sell that can help you lock in your winnings. Using both types of orders can help control your exposure to uncertain risk and also help you overcome the hazards posed by trading psychology.
4. Use Consistent Trading Timeframes
Timing is a variable that is often overlooked by serious traders but, nevertheless, remains very important. Trading with consistent day trading time frames will make it easier to recognize patterns and control your ability to produce results. For example, some forex trading strategies will be extremely limited, involving trading during an hour period each weekday when markets are most active. Regardless of the timeframe that fits your trading profile, it is important to remember that when you choose to trade can directly affect your trading outcomes.
5. Bet on Industries, Not Specific Companies
As suggested, diversification is key to reducing the risk that comes with trading. Rather than betting on a single stock, consider betting on industries as a whole. Investing in the tech industry, via FAANG indexes, innovation indexes, or other diversified positions, can help you enjoy the growth of domineering industries with minimal downside. This is especially desirable for industries, like the financial industries, containing stocks that often move in lockstep with one another.
6. Pay Attention to Legislative Changes
Legislation can directly influence how markets perform, meaning that anyone who wants to be an active trader will also need to maintain some degree of political awareness. For example, following the issuing of payments to many American families (2020), many consumer-oriented industries immediately rallied. New trade deals, changes to the tax code, and industry regulations will directly affect how a given stock might perform.
7. Use Channel Indicators
Channel indicators help make it easy for traders to determine an asset’s typical price range. Bollinger Bands strategy, for example, help reveal all price movements within two standard deviations of the expected mean. Consequently, looking at these indicators can help you identify when a price reversal is likely to occur, and when a trend is likely to accelerate.
8. Know that Markets Tend to Overreact
During periods of intense volatility—as has been seen during the past twelve months—markets will often experience dramatic price swings in a very short amount of time. However, as a consequence of both a rallying effect and out trading psychology, these movements are usually “overly'' dramatic. While you should certainly pay attention to what market-wide trends are unfolding, it is important to remember that markets, in general, are overactive.
9. Don’t Get Hung Up on a Single Position
One of the worst things a trader can do is assume that, perhaps as a result of their fundamental or technical analysis, a particular position must be a winner. This can cause traders to hold onto losing positions for far longer than can be financially justified or hold on to winning positions beyond their zenith. Never forget: the purpose of developing a trading strategy isn’t to never lose, but to maximize your potential to win.
Conclusion
2021 has a lot of potential for traders, but if you hope to succeed, you’ll need to take direct action. Whether you’re new to trading or have been in the game for years, be sure to keep these useful tips in mind.
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