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 economic activity.
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 eco-friendly industries.
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 penny stocks.
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 balance
- Be at the top of your game and love life
- Enjoy greater freedom, with flexible work hours
- Work from anywhere there is an Internet connection
Cons of day trading
- Difficult to master
- Risk of loss of capital
- Tremendous investment of time and funds
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.
