EDUCATION FROM BROKERS
Thu 21 Jan
What will 2021 day trading activity look like?
Geopolitics does and will impact markets in 2021
2020 was like a big blur, racked with
indecision, uncertainty, and turmoil. The financial markets weathered the storm
in the US, but what about day trading in 2021?
In the broader scheme of things, 2020 was an
anomaly. A pandemic comes around once every 50
years on average, with the last 9 pandemics since 1700 taking place in the
following years: 1729, 1732, 1781, 1830, 1833, 1889, 1918, 1957, and 1968.
History tends to repeat itself, and if this is the case, many of us will not
face another pandemic in our lifetime. As far as trading activity goes, one
cannot ignore the importance of patterns, trends, and cyclical movements.
Hindsight is 2020, and yet there is little
clarity we can gain from the year that was. The world as we know it has already
taken on a different complexion. The cantankerous presidency of Donald J. Trump
has come and gone, and a new era is firmly upon us. A measured leadership approach
under the Presidency of Joseph R. Biden has arrived. The new commander in chief
is entrenched in his position with complete party control over the House, the
Senate, and the Oval Office. Politics is deeply interwoven into the fabric of
As a day trader, it's important to
understand the opposing ideals of Trump vs Biden in relation to trading
activity. For one thing, the types of trades you make will change in 2021.
During the Trump era, energy stocks such as natural gas, WTI crude oil, coal,
et al were expected to hit stratospheric heights, yet they failed despite strong
demand, steady supply, low costs, and the pandemic.
These types of stocks are likely to
flounder under the presidency of Joe Biden, given his focus on green energy
a.k.a. alternative energy and clean energy. With that in mind, it is likely
that companies such as Tesla (NASDAQ: TSLA) will continue to reach new highs as
government regulations, incentives, and other tax breaks filter into
Stocks Likely to Stabilize in 2021
Forecasting stock price performance is an
unenviable vocation, and one which rarely hits the mark. Given the sheer number
of uncontrollable variables that can influence pricing, it is disingenuous to
suggest which stocks may flounder in which stocks may fly. However, the first
half of 2021 is likely to be characterised by a continuation of restrictions,
vaccinations, and combating new strains of the novel coronavirus. This will
impact specific industries more than others, notably airlines, cruise ships,
travel and tourism.
For now, those stocks are considered hold
options, or potential buy options with a medium-term to long-term perspective.
In Q1 2020, we are seeing a slow but steady appreciation in the value of cruise
line stocks, led in part by Carnival Corporation (ECL), Norwegian Cruise Line
Holdings (NCLH), and Royal Caribbean Group (RCL). Day traders will not gain
much traction with the stocks presently, given the status quo.
However, there has been a strengthening in
the valuations of these companies, through massive government stimulus. Airline
stocks - always a risky proposition - are also shaping up for take-off later in
2021. The likes of Delta Air Lines (DAL), American
Airlines Group (AAL), United Airlines Holdings (UAL), and Southwest
Airlines (LUV) are also medium to long-term prospects.
Day traders have the added advantage of
going long - bullish - or going short - bearish - on stock options. The
clearest indicators of momentum are found in the stock market capitalizations.
As evidence of the current bull run in full flight, the 1-year performance of
all US indices is strongly positive. The strongest performing indices
are the NASDAQ composite index +43.14%, followed by the S&P 500 index
+15.73%, and the New York Stock Exchange composite index +6.26%. European
stocks are largely negative over the past 1 year, with only the German DAX 30
index showing signs of anaemic growth at +2.75%.
Further afield, Asian markets are also ripe
for the picking. The strongest performing Asian markets are the CSI 300 index
+30.83% over 1 year, followed by the MSCI AC Asia Pacific index +21.01%, and
the Nikkei 225 index +18.43%. Whether any of these numbers hold moving into Q2
2021 and beyond is up for debate. It all depends on how the global vaccination
rollout goes, and the threats posed by mutations (second and third deadly
strains of the virus) on the populace. For now, it's a period of rebuilding and
consolidation, as businesses slowly pick up the pieces and grind into gear.
Day traders needn't sit on the sidelines
waiting for business activity to pick up - there is always an abundance of
market-related activity taking place. During the worst part of the pandemic in
2020, when entire countries were shutting down and people were furloughed in
their droves, a niche group of retail traders emerged on the scene. These
largely inexperienced traders bypassed traditional brokerages, middlemen, and
fund managers, in favor of going it alone.
Many trading platforms experienced a boom,
including Robinhood, E*TRADE, StocksToTrade, TD AmeriTrade, Charles Schwab, and
others. The sheer number of day traders became significant enough to reach
critical mass. This was especially true vis-a-vis low-cost stock options such
as penny stocks. These volatile financial instruments typically struggle with
liquidity, given the fact that they don't get much media exposure. Yet, they
are priced right and accessible to a growing number of first-time day traders.
What Options to Look for as a Day Trader in
the Financial Markets?
Anyone can get lucky sometimes, but traders
who consistently generate a favorable ROI are relying on a lot more than luck
to get results. Truthfully these traders understand how to day
trade for a living because they're doing it; they're living the dream. Behind-the-scenes,
lots of hard work goes into becoming a successful trader. Tremendous time and
effort are invested in stocks trading education to better understand the
factors impacting the financial markets. Various options are available to
traders, including stocks, commodities, indices, forex, and even crypto. Day
traders typically trade stocks, including blue-chip stocks, regular stocks, and
These equities follow basic economic
principles, with supply and demand determining pricing. When there is excess
demand, prices rise, when there is excess supply, prices fall. In between,
these stocks are trying to establish an equilibrium price. As a day trader, you
will be presented with thousands of options, many of which are difficult to
evaluate with any degree of accuracy. This is particularly true of penny stocks
which are traded OTC, or as pink sheets. They don't have much media exposure,
and struggle to generate interest from investors. Many penny stocks - stocks
which trade under $5 - fly under the radar, and are often just concept
companies with no proven track record.
These penny stocks present a good starting
point for day traders, because they are affordable, volatile, and can be traded
long or short accordingly. Several reputable trading platforms allow low
minimum balances. This is ideal for new day traders. Your success as a day
trader hinges upon your ability to learn from your trades. Winning trades and
losing trades are par for the course. Your ratio of wins to losses is less
important than the actual value of your wins compared to those of your losses.
There are many instances of traders having 60% loss rates, and yet coming out
with a strong ROI, because their winning trades outperformed their losing
trades by a long margin. It really is a numbers game.
Getting into the game is the tough part.
New trading platforms need to be understood, stop loss orders, take profit
orders, stock screening tools, economic indicators, technical analysis,
fundamental analysis, paper trading, and other important technical elements
must be understood. It is a process of ongoing learning that separates
successful day traders from unsuccessful day traders. Even when you are
enjoying a hot streak, you should be learning from your success. Markets are
dynamic. The only constant is change. Traders are encouraged to soak up as much
information as possible, to guard against complacency.
Pros and Cons of Day Trading
Pros of day trading
Enrich your mind & bank
balanceBe at the top of your game and
love lifeEnjoy greater freedom, with
flexible work hoursWork from anywhere there is an
Cons of day trading
Difficult to masterRisk of loss of capitalTremendous investment of time
With all that said, day trading is
certainly a professional vocation worth pursuing if you are serious about
putting in the time, effort, and financing. All day traders experience wins and
losses in their trading activity. It's inevitable. Nobody wins all the time.
The objective therefore is to make educated decisions about the future price
movements of the underlying financial instruments.
When your assessments hold true, the trades will reward you. There is no
tincture you can drink to become an expert trader; it's lots of hard work,
learning, and practice that goes into it. The objective is to make incremental
gains over the long-term. That's how you build a strong foundation as a day
trader. Stay the course, and you will
reap the rewards over time.
For bank trade ideas, check out eFX Plus