As countries around the world roll out their vaccine plans, we can see different industries and different countries recovering at different rates.

However, only a small percentage (about 5%) of the global population is vaccinated, so it might take a while before we start to see the results of the vaccines kick in to reduce new Covid cases.

If you look at the graph of new cases, it is still on the rise.

Given such a scenario, how does this affect the financial markets, and what are some of the investment opportunities we can look at?

 

Stock Market Surge

On 31 March 2021, I shared this important snippet in the public Telegram channel, because I felt that S&P 500 was going to have a breakout.

 

“Following up on the S&P 500, it is still within the range, but now the odds are much higher that it will continue going higher.

If I had to guess, I would estimate 70% bullish and 30% bearish.

This means it’s a good low-risk opportunity to add long positions, with a SL just below the recent swing low (around 3840).

Shared this with my students a few days ago, will tonight be the night the S&P 500 makes a new high?”

 

That very night, stocks broke to a new high, and has been steadily heading up for the past 1-2 weeks.

 

“Following up on our last post, the market is surging up as predicted. Congrats to those who followed! 💰😎🔥

 

As of Friday last night (9 April 2021), the S&P 500 has hit our first price target of 4125, giving us close to 4% gain so far.

 

 

We have taken half profits, and there might be small pullback where we can add positions before gunning for the next price target.

 

Not Much Upside for Oil Markets

On 27 March 2021, I shared a chart on the long-term outlook of the Crude Oil market, and I felt that that most of the post-Covid recovery has been priced into oil, and since it won’t be going up much, I suggested taking a long-term short position on it.

“Looking at the long-term chart of Crude Oil, we saw it bottom around April last year, before recovering all the way to previous highs in a 2-legged move.

Something interesting to note is that the 2 legs of the 2-legged move are exactly the same length.

Now that it has reached the pre-Covid highs, I do not see much more upside for Crude Oil.”

 

“Following up on Crude Oil, it has started turning down as predicted. Possible short entry for the next leg down.”

Since then, prices have started to turn down a little, and I will continue to hold my short positions for another possible leg of price movement downwards.

 

Will USD Become Bullish?

On 27 March 2021, I noticed that the USD was picking up strength, which was surprising, considering how much money the US has been printing.

My guess is that currently, the US is recovering faster from Covid as compared to many of the less developed countries.

 

“Looking at the US Dollar Index (DXY), it seems like after a multi-year downtrend, the USD is picking up strength.

It has broke the long-term bearish trendline, formed a small double bottom, and is now challenging the 200-EMA.”

 

Looking at the larger chart of the US Dollar Index (DXY), you can see that price has formed a double bottom, however the size of this pattern is not that convincing since it is comparatively small.

Price is now fighting in the middle of the EMAs, and we will need to see if it can emerge victorious and stay above all the EMAs.

 

Relative Strength of Forex Pairs

Let’s take a look at the other currencies and their relative strength.

This shows the current ranking of different currencies, from strongest to weakest.

 

“Stocks continue to surge as predicted, and because the JPY is weakening, all pairs of /JPY are very bullish too.”

This shows the trends of the different currency pairs, stocks indices, commodities and bonds.

From these 2 tables, we can see that JPY & GPY are bearish, while USD & CHF are bullish.

 

Crypto: Bitcoin & Ethereum

Cryptocurrencies are really heating up right now, and I’ll be focusing on the 2 major ones – Bitcoin (BTC/USD) and Ethereum (ETH/USD).

 

Looking at the chart of Bitcoin (BTC/USD), it is still staying nicely within the uptrend channel, with a nice ascending triangle building up for more bullish pressure.

It is very likely that it will break new highs this weekend.

 

Looking at the chart of Ethereum (ETH/USD), it is possibly even more bullish than Bitcoin, after a breakout of a ascending triangle, a pullback to test the breakout, which also formed a bull flag.

That is already a confluence of 3 bullish factors.

Needless to say, I will be holding on to this as well.

 

Market Summary

In this post, I have covered many markets, and the key things to note are:

  • Bullishness of the stock market
  • Long-term bearishness of Crude Oil
  • Potential bullish reversal of the USD
  • Bearishness of JPY & GPY
  • Bullishness of USD & CHF
  • Bullishness of cryptocurrencies

Now that I have shared my views on the various markets, what do you think is the best investment at this point of time?

Let me know in the comments below!

Would you pay millions of dollars for digital artwork?

Welcome to the world of NFTs, or non-fungible tokens.

Just this year so far, about $1.3 billion of NFTs have traded through Ethereum network, dwarfing the activity last year.

The biggest transaction was an NFT purchased for $69.3m dollars.

Sounds unbelievable? Let’s find out more about this hottest new asset class.

 

What Are Non-Fungible Tokens (NFTs)

Firstly, to understand what fungible means, let’s look at the concept of normal fiat currency.

If you have a $10 bill, that bill is fungible, because it is completely interchangeable with any other $10 bill. Every bill has the same value, and there is nothing unique about it.

Similarly, cryptocurrencies like Bitcoin are also fungible, meaning 1 Bitcoin (BTC) is interchangeable for any other Bitcoin and has exactly the same value.

On the other hand, NFTs, which rely on special token standards like ERC-721 (using blockchain technology) to ensure uniqueness, are non-interchangeable and each token is unique.

In this way, NFTs are like digital artwork or collectibles because they are one-of-a-kind, and ownership is locked to one particular person (the owner/buyer), making every piece a unique and limited-edition piece of work.

“Think of it like a digital passport that comes with an asset,” said Nadya Ivanova, chief operating officer of BNP Paribas-affiliated research firm L’Atelier. “They allow for this trust and authenticity to be established in a way that we haven’t been able to do before, whether it’s with physical assets or digital assets.”

 

How do NFTs Work?

NFTs are actually cryptographic tokens with unique identification codes and metadata that make them unique.

Created on a smart contract platform such as Ethereum, these tokens are unique and cannot be replicated.

This means that when you buy an NFT, you are essentially buying lines of code on a blockchain.

But these lines of code do have value.

They represent proof of ownership and authenticity of these digital artworks and assets, that this asset you own is uniquely and authentically yours.

This blockchain, which is a type of decentralized record-keeping on a public ledger of blocks, means that the whole world knows who officially owns the NFT.

And because it is decentralized, multiple records are stored all over the place, so it is impossible to hack the network to “steal” ownership of the NFT.

Since an NFT’s uniqueness and ownership can be easily verified, and they ensure strong property rights which cannot be stolen, they can be efficiently traded on the secondary market.

As a result, this new asset class can empower creators, such as artists, developers, in a variety of new ways that weren’t possible before, allowing them to monetise their creations more directly.

 

The Different Types of NFTs

Back in 2017, we saw the first NFTs in projects such as CryptoPunks and CryptoKitties, where blockchain technology was used to sell online collectibles.

Since then, the industry has bloomed into a wide variety of new use cases and industries, with a market exceeding $1b dollars.

NFTs can be used to tokenize just about anything, and so far some of the most popular NFT use cases have been:

  • Gaming assets (Axie Infinity, Gods Unchained, Sorare)
  • Attendance receipts / Event tickets
  • Subscription badges
  • Digital art (Async Art, Rarible, SuperRare)
  • Blockchain domain names (Unstoppable Domains, Ethereum Name Service)
  • Tokenized insurance policies (yEarn’s yInsure tokens)
  • Tokenized luxury goods, e.g. wine
  • Digital music (Mintbase, InfiNFT)
  • Virtual real estate (Cryptovoxels, Decentraland)
  • VR wearables

 

Samples of Most Expensive NFTs Sold

Here are some recent samples of NFT artworks and related products that have been sold, proving that this is a potential multi-billion dollar or trillion-dollar market.

  • NBA’s Top Shot NFT-based trading card system – $230m in sales
  • “Everydays: The First 5,000 Days” by Beeple – $69.3m
  • CryptoPunks #7804 and #3100 – $7.6m each
  • CROSSROAD by Beeple – $6.66m
  • Collection of 10 digital artworks by Grimes – $6m
  • First Tweet by Jack Dorsey – $2.5m
  • Exclusive NFT version of their latest album by Kings of Leon – $2m
  • CryptoPunk #6965 – $1.54m
  • Auction Winner Picks Name by SSX3LAU – $1.33m
  • Not Forgotten, But Gone by WhIsBe – $1m
  • Hairy by Steve Aoki – $888,888.88
  • THE COMPLETE MF COLLECTION by Beeple – $777,777.77
  • Nyan Cat by Chris – $590k

The founder of Twitter, Jack Dorsey, recently auctioned his first tweet ever on the Twitter platform to raise money for charity.

The tweet, which said “just setting up my twttr,” was first published on March 21, 2006 and was sold for $2.9m.

 

Are NFTs a Scam? Why Would Anyone Buy NFTs?

When you buy an NFT, what you are getting is a unique cryptocurrency token on the blockchain.

Some NFTs have only one version, so it is like owning the authentic version of a famous artwork such as the Mona Lisa.

However, things can get a little confusing here.

Because there are also NFTs which are digital versions of the reprints, kind of what you see in Pokemon cards where each card is printed multiple times.

But for each NFT, there is still a unique “watermark”, which is the code, so if yours is the original or limited edition, then the property rights or IP of the digital asset belongs to you.

For example, the “Nyan Cat” meme is freely available to anyone who wants to download a copy of it, but none of these downloads are the ‘real’ Nyan Cat NFT worth 300 ETH.

In the jargon of the art world, the difference is like owning an original versus owning a replica.

In the art world, one of the biggest problems is fake artworks.

However, because of blockchain technology, it is impossible to sell “fakes” of NFTs, because anyone can easily check the online public ledger to see who owns the real original NFT.

So in a sense, it is actually safer than physical artworks.

 

How Much is an NFT Worth? What Are the Risks?

How much should you pay for an NFT, or how much should you sell one for?

Just like dealing in valuable art pieces or collectibles, this answer is tricky because the value is totally dependent on supply and demand.

An art piece or collectible is only worth as much as what the next person is willing to buy it for.

So using that as a benchmark, you want to look out for things like artist reputation, scarcity, and provenance, including the origin and past transactions.

You can try to benchmark it against other similar pieces by the same artist, or other products in the same genre, but at the end of the day, the worth is determined by the market.

Hence, you want to make sure there is still interest and other buyers for your NFT, should and when you decide to sell it in the future.

The biggest risk is that should the NFT craze turn out to be a bubble, kind of like a game of “pass the bomb”, then you don’t want to be the fool left a bunch of worthless NFTs which you paid a lot for.

Since this is still the early phase, the risk of this is less, but the risk of a potential bubble increases if prices for popular NFTs keep increasing exponentially, akin to the Tulip Mania.

Another risk is that because NFTs are transacted in cryptocurrencies (ETH), the prices of NFT are very likely tied to the price fluctuations of cryptocurrencies.

So if you have noticed, there are sort of 2 different segments of NFTs. One is the super expensive NFTs of rare digital artworks or collectibles, while the other is the more “down-to-Earth” retail market for common folks to sell or access useful products and services.

For the former, just like the market for valuable artworks and collectibles, I feel that it is somewhat of a playground for rich investors to speculate, and not really meant for the typical retail investor.

 

How to Create & Mint NFTs

However, even though you don’t have millions of dollars to speculate on NFTs, you can still take advantage of this trend by creating and selling your own NFTs.

If you have already tried uploading photos or videos on social media platforms like Facebook, Instagram, or Tik Tok, then you already know how to create “digital artwork”.

The difference is that after creating your artwork, there is one extra step called “minting” to turn your creation into an official NFT.

To do that, you can use one of the many NFT minting platforms around the Ethereum ecosystem. Each has its own pros and cons, and different fees.

DIY (do-it-yourself) minting platforms like OpenSea, Rarible, InfiNFT, Mintbase, and Cargo let creators easily and permissionlessly mint their own NFTs.

On the higher end, there are some exclusive membership-only NFT minting platforms to which creators have to apply and be accepted before they can mint through these platforms, such as SuperRare and Async Art.

Once you have decided on your platform, you will need to upload your artwork, fill in a description, and decide whether you want to create a standalone or edition-based piece, your asset’s royalty percentage, unlockable content, etc.

Finally, you will need to make payment via ETH (Ethereum) for the approval and minting process to commence.

 

How to Buy and Sell Non-Fungible Tokens (NFTs)

Now that you have created your own NFT, the next step is to find a marketplace to sell it.

Thankfully, there is already such ecosystem set up, with open marketplace platforms like OpenSea, Nifty Gateway (art), Decentralland, Enjin (games), Yellowheart (concert tickets), NBA Top Shot (NBA collectibles), SuperRare (art) and Rarible where you can list your NFTs for sale easily, depending on which category your NFT falls under.

Payments are done via Ethereum (ETH) as well, so you will need to connect your wallet to the platform, in order to buy or sell any NFTs.

 

Criticism of NFTs

What are some of the current drawbacks of this NFT system?

High Transaction Fees (Ethereum Gas Price)

If you recall in the previous segments when we talked about minting, buying and selling NFTs, there were transaction fees involved.

One problem is that these transactions fees can be quite high.

As most NFTs are on the Ethereum blockchain platform, each transaction requires the payment of Gas: the fee charged for processing a transaction or contract on the Ethereum blockchain network.

This fee is denominated in gwei: a small fraction of ETH.

Hopefully, as the market matures, and more competition comes in, the fees for these transaction costs will fall as well.

Environmental Impact

Currently, Ethereum still operates on the “Proof of Work” architecture that requires mining, which consumes a large amount of electricity and leaves a large carbon footprint.

To put this into context, the amount of electricity that the Ethereum network consumes rivals that of countries like Ecuador with a population of about 17.4 million.

Since almost all NFT transactions involve ETH, this will undoubtedly contribute to the usage of the network and electrical consumption.

Hopefully, Ethereum will be transitioning to a more eco-friendly “Proof of Stake architecture” soon, although progress has been slow since this idea was first put forth years ago.

 

Concluding Thoughts on NFTs

Currently, the NFT transactions attracting all the hype are the super expensive transactions similar to valuable artworks or rare collectibles.

While these garner the headlines, the more relevant applications NFTs could lie in empowering independent creators such as artists and developers to directly monetise their creations.

The huge potential also lies in the myriad of products and services which businesses (both small and large) can create or tie-in with their existing offerings in the offline world.

This means that in a couple of years, many of these products and services could become commonplace in our lives, unlocking a trillion-dollar market opportunity.

Now that I have shared all you need to know about NFTs, what do you think of this new asset class? Is it a bubble or is it here to stay?

Let me know in the comments below!

 

You have probably heard horror stories of people losing all their hard-earned money in the financial markets, or even going into debt.

This makes you wonder if you should avoid any form of high risk trading or investing, and just stay away from the financial markets.

But is trading really that risky? Is it similar to gambling in a casino? Is the chance of losing everything really that high?

Or is there a proper way you can do it safely?

 

 

In this blog post, I’m going to talk about the risks of trading and investing, and whether it is the same as gambling in the casino.

 

Similarities of Trading & Gambling

Most people agree that gambling is definitely risky, and is a sure-lose proposition in the long run. And I don’t dispute that.

What about trading then? Is it the same?

At first glance, trading appears to be very similar to gambling, which is why many people tend to lump them together, and deem it to be intrinsically risky, with the high possibility of a huge loss.

However, while there are some similarities, there is actually a major difference between these two activities.

Firstly, for the similarities.

Trading and gambling both involve a certain element of luck and skill, as well as probabilities and uncertainties.

If I had to make an estimate, I would say 80% skill and 20% luck, if you are trading, but 20% skill and 80% luck if you are gambling.

Both present the opportunity to make or lose huge amounts of money in a short period of time, depending on your skill level.

That is why both pursuits require good money management skills and strong psychology.

 

What is Your Trading Edge?

However, there is one big difference – the mathematical edge.

Whether you are trading or gambling depends on whether you have the edge.

Simply put, this refers to whether probability is on your side.

If you are a professional trader or a professional gambler, and you have the edge, then you will likely be profitable in the long run.

If you have no idea what you are doing when trading or gambling (you do not have the edge), then you will most likely lose in the long run.

In a casino, since most people have no idea what they are doing, and most people are just there to have fun, the casino usually has the edge, and hence it wins most of the time.

So in order for you to beat the casino, or other players in the financial markets, you need to have an edge.

As I covered in my other posts, your trading plan and trading journal should help you develop that edge.

 

What is Expected Outcome in Trading?

Before I move on, let me explain what this edge is all about.

To do that, we need to bring in the important concept of “expected outcome”.

Without going into the detailed math (which I have covered in another post), the “expected outcome”, or E(X), tells you whether your strategy is profitable in the long run.

If your expected outcome is positive (more than zero), it means that over the long run, your strategy does have the edge, and you will be profitable.

On the other hand, if your expected outcome is negative (less than zero), then it means that over the long-run you will lose money.

 

How to Calculate Expected Outcome

How then, is this expected outcome calculated?

It depends on 2 main factors, namely:

  • Your hitrate (or winrate)
  • Your reward-to-risk ratio (RRR for short)

Your hitrate is your winning percentage, for example a 70% hitrate means you win 70% of the time, and lose 30% of the time.

Your RRR is the ratio of how much you make when you win, versus how much you lose when you are wrong.

When you combine these 2 components, you can calculate your expected outcome, which will tell you whether you have the edge.

In trading, doing your analysis and taking a calculated risk tilts the probability in your favour, while in gambling, such as in a casino, the odds are always against you.

 

How Often Do You Need to Win to Be Profitable?

Some people have asked: Is it possible to make money if you only win 40-50% of the time?

The answer is yes.

If you make more money when you win, as compared to your losses when you lose.

For example, if you make 2-3x returns whenever you win, but only lose 1x when you are wrong, and you win 50% of the time, your expected outcome is still positive.

So it really depends on the strategy which you are using.

There are many different types of strategies, with different combination of hitrate and RRR, which can all give a net positive outcome.

For example, you could have a lower hitrate and high RRR, like the one mentioned above, or you could have a higher hitrate and lower RRR.

In a sense, this is a trade-off, but you just need to find the right balance of hitrate and RRR that gives you a positive expected outcome.

 

How to Beat the Casino

Another important concept is the law of large numbers.

We previously established that if you have the edge, your expected outcome is positive, and you will be profitable in the long-run.

But how do we ensure that you last long enough to take advantage of the long run?

In other words, how do we ensure that you do not blow up your account (lose all your capital) before you are able to utilize that trading edge?

In statistics, the law of large numbers states that the larger your sample size (the number of times you trade or gamble), the closer your outcome will be to the expected outcome.

So, the solution is actually quite simple.

All you need to do is to make sure you spread out your money over many trades. Because the more trades you take, the more likely your results will match the expected outcome (which is positive).

In gambling, since you do not have the edge, your best bet is to actually do the opposite, which is to take a handful of large bets, and quit the moment you’re up, because the longer you play, the more likely you will lose money in the long run.

By doing so, you can take away the edge that casinos have.

On the other hand, if you have the trading edge but you do not manage your money well, then you are taking away the edge that you have.

 

Can You Follow the Plan?

One other important factor to consider is the psychological and emotional aspect of trading/gambling.

Because money is at stake, many people are unable to make logical decisions or execute their strategy systematically.

If you have a strategy which has an edge, but you execute it differently, then you are either giving up that edge, or worse, changing your strategy into one which has a negative expected outcome.

For example, if you do not fully optimize your winning trades (taking profit too early), or you do not manage your losses well (not cutting losses), then your RRR will change drastically.

This is because your reward will be lower than expected, and your risk will be higher than expected, so your overall RRR will be much worse.

This could be enough to destroy whatever edge you have, and tip your expected outcome from a net positive to a net negative.

It doesn’t make sense to come up with a great strategy and trading plan, and then choose not to follow it due to conflicting emotions.

 

 

Are you making decisions or just guessing?

Are you making decisions or just guessing?

 

Concluding Thoughts

In conclusion, the greatest risk is not trading or gambling, but rather the player.

The risk involved is not dependent on the activity itself, but rather the expertise and experience of the person doing it.

Professional poker players (who are not gamblers) win because they do not play by pure luck (gambling), instead they use a system that gives them an edge over other players in the long run.

The reason why people lose big in trading is because they trade without a method or system which gives them an edge, or even if they do have an edge, they do not take full advantage of the edge, and instead take single large bets instead of many small bets.

This is why position-sizing, capital allocation and risk management are such essential concepts in trading.

Emotions, such as greed and hope, also tends to cloud better judgment even when one should know better, and erodes the trading edge in their strategy.

Most traders tend to see only the upside in their trades, and not the downside, hence they sell quickly once they see a profit, but hold on to losses in hope that these would turn around.

These are the main reason why many traders who have the edge are still unable to grow their accounts.

So if you want to be profitable in trading, just keep in mind these 3 things:

  1. Have a trading plan & strategy which gives you an edge
  2. Spread your capital over a large number of trades
  3. Manage your emotions and execute your trading plan

 

Now that I have shared the main difference between trading and gambling, do you still think that trading is as risky as gambling?

Let me know in the comments below!

You probably have heard of paper trading, but do you know that most people are doing it wrongly and it ends up being a waste of time?

As a new trader, does it make sense to start off with paper trading and what is the correct way to do it?

In this blog post, I’m going to talk about paper trading, the correct way to do it, and discuss whether it is worth your time doing it.

 

 

What is Paper Trading?

Firstly, what is paper trading?

Paper trading or demo trading or virtual trading, is the idea of trading with fake money, thus simulating the experience of trading yet avoiding the risk of losing any money.

Basically what this means is that you use a virtual account or a demo account and this simulates trading but you are not actually using any real money to trade.

So, in this sense, you do not actually lose any money.

When you are starting out, it makes sense to start with less capital or fake money, and focus first on honing your trading skills.

You can then always scale up or use real money as your skill gradually improves.

This makes sense because for new traders, most of the mistakes are made when you are starting out and so the idea is for you to minimize the cost of those initial mistakes by using fake money.

This can be a good idea for the first 10 to 20 trades where you just want to get an idea of how to execute the trades and the process of managing those trades, however the main problem with paper trading is that you cannot learn any real trading psychology if you just do paper trading.

Because if you recall, the mindset or trading psychology is a major factor in trading success.

Imagine playing poker with fake money. Is it still the same experience? Definitely not.

Because trading similar to poker in many ways, test your ability to make good sound decisions under the stress of having money at stake.

Without any skin in the game or any real money at stake, the experience is just not the same.

 

Ways to Paper Trade

What are some of the ways that you can paper trade?

The easiest way is to simply use pen and paper or a spreadsheet to record your trades.

For example, if you’re browsing the charts and you spot a good opportunity, and you decide “I’m going to buy x number of lots at this price” and you record down the trade, then as the price progresses you can record down “I’m going to exit at this price”, and whether you made a winning trade, how much you made, etc.

This is a more manual way of recording your trades.

But now with a lot of software available in the market, such as Tradingview or if you are using any brokerage platforms, they usually provide you with a demo trading account, so this allows you to trade on the products that are available on the platform where you can buy and sell the products using a demo account and all the transactions will be recorded.

It’s easy for you to refer back to all the transactions and trades that you have made.

These are the 2 easiest ways of paper trading.

 

How to Paper Trade Correctly?

Next, how do you paper trade correctly?

Earlier on, I mentioned that many people are doing it wrongly and hence it ends up being a waste of time.

If you want to get the most out of your paper trading, there are 3 important things that you need to take note of.

The first is you need a trading plan, like I mentioned in my previous videos.

Check out: How to Craft a Winning Trading Plan (The 7 Key Ingredients)

Before you place any trades, whether it’s on a real account or demo account, you need to plan out the trade fully.

You need to know what strategy, what time frame, what product, where you’re going to enter and exit your trade.

You need to have everything planned out before you even take the trade, because if you’re going into paper trading and you’re just randomly buying and selling, then there is no learning
or experience at all because you don’t even know what you are doing, so whether you win or you lose, at the end of the day, you have no idea whether what you did was right or wrong.

The second thing that you need to have is the trading journal.

Check out: How to Create a Trading Journal (And Discover Your Edge in the Markets)

Basically, you want to record down the whole process of your decision making, your buying and selling, what emotions are involved, the decisions that you made, why you made all these
decisions, because all these data from your trading plan and your trading journal will help you formulate and improve your strategies such as when you go to real trading.

The last thing which is the most important, is to treat your paper trading account or your demo account as if it is a real trading account.

This is the closest thing you can get to simulating the trading psychology, because if you treat your fake money as real money, then at least when you make the decisions, you will apply your proper money management and risk management rules.

 

Pros & Cons of Paper Trading

What are the pros of paper trading?

Firstly, there is no risk involved because you are using fake money on a demo account so even if you make a lot of beginner mistakes, for example you you accidentally key in the wrong orders,
or you press the wrong buttons, it doesn’t matter because you can then reset your account and do it properly the next time.

In a way, it’s a cost-free way of learning and making mistakes.

The next thing is to gain confidence because as you familiarize with the platform and the ways of executing the trade, you also gain confidence in your strategies and at the same time, you are also testing out whether the strategies work.

This works best if the demo platform you are trading on is the same as the actual platform you will be trading on once you move into live trading.

After paper trading for a period of time, if you are actually making good profits, it means that your trading strategy probably should work in the real market as well.

The third point is that in a way, it is also forward testing your trading strategy because after deciding what the strategy is in your trading plan, you are now testing it forward as opposed to back-testing.

What are the cons of paper trading?

The most obvious one like I mentioned before is that there’s no skin in the game, so it is hard to learn trading psychology when real money is not involved.

The next risk is overconfidence because you might think that you know you are doing very well on paper trading, only to realise it is not the same when it comes to real money.

This phenomenon is something I frequently noticed when I was trading professionally at hedge funds.

A lot of people do well on the demo account or the paper trading phase, but when it comes to real money, they somehow lose that confidence or they become too overconfident and thus, they
tend to blow their accounts.

The next point is slippage and commissions.

When you are trading with paper trading or demo accounts, it may not necessarily accurately reflect any slippage or commissions, which are the transaction costs that are involved in real trading, so you might want to take note of that, especially if your trading strategy involves a lot of transactions, then this could become significant.

The last disadvantage for paper trading is if you are just looking for a way to see if your strategy works, then back-testing does a much better job that paper trading.

You can test easily 10 to 20 strategies, by computerizing it so that you can test multiple strategies at one time before you even start trading.

Hence, back-testing is way more efficient if you are looking for a way to see if your strategy works.

 

Summary of Paper Trading

In conclusion, my advice to new traders is to start off with paper trading for about 10 to 20 trades, then move on to trading a small account with real money.

You can get used to being able to execute trades when you are doing the paper trading phase, but eventually when you move on to the real account, then you can see how their trading psychology is like when there’s real money at stake, so it doesn’t matter how small you start with as long as it’s real money, then you can slowly scale up and gain confidence trading real money.

To sum up, what I would recommend is to:

  • Use back-testing to test your strategies and once you have a good strategy, then you
  • Use paper trading to familiarize with the process and after that once you are familiar with the process, then you
  • Move on to real trading to train your trading psychology.

That is the whole flow and the process of progression in trading.

So now that I’ve shared the correct way to do paper trading, do you still think paper trading is useful and have you tried it out for yourself?

Let me know in the comments below!

On Monday (March 22nd 2021), the S&P 500 will be replacing 4 of its current holdings.

This reflects the current market trends and new economy, and I am eyeing it closely because I have quite a lot of my portfolio in the S&P 500 ETF.

This should result in bullish pressure of those stocks added, while being bearish for those removed.

But before we look at those companies, do you know what the S&P 500 index is?

 

What is the S&P 500 Index?

The S&P 500 stock market index, maintained by S&P Dow Jones Indices, comprises 505 common stocks issued by 500 large-cap companies and traded on American stock exchanges (including the 30 companies that compose the Dow Jones Industrial Average), and covers about 80 percent of the American equity market by capitalization.

The index is weighted by free-float market capitalization, so more valuable companies account for relatively more of the index.

The index constituents and the constituent weights are updated regularly using rules published by S&P Dow Jones Indices.

Although called the S&P 500, the index contains 505 stocks because it includes two share classes of stock from 5 of its component companies

Source: https://en.wikipedia.org/wiki/List_of_S%26P_500_companies

 

New Companies Added to S&P 500:

  • NXP Semiconductors N.V. ($NXPI)
  • Penn National Gaming, Inc. ($PENN)
  • Generac Holdings Inc. ($GNRC)
  • Caesars Entertainment, Inc. ($CZR)

Companies Removed from S&P 500:

  • Flowserve Corporation ($FLS)
  • Xerox Holdings Corporation ($XRX)
  • SL Green Realty Corp. (SLG)
  • Vontier Corporation ($VNT)

 

 

Here are the company profiles of the incoming components:

1. NXP Semiconductors N.V. ($NXPI)

NXP Semiconductors N.V. offers various semiconductor products. The company’s product portfolio includes microcontrollers; application processors including i.MX application processors and i.MX 8 family of applications processors; communication processors; wireless connectivity solutions, such as near field communications, ultra-wideband, Bluetooth low-energy, Zigbee, and Wi-Fi and Wi-Fi/Bluetooth integrated SoCs; analog and interface devices; radio frequency power amplifiers; and security controllers, as well as semiconductor-based environmental and inertial sensors, including pressure, inertial, magnetic, and gyroscopic sensors. Its product solutions are used in a range of applications, including automotive, industrial and Internet of Things, mobile, and communication infrastructure. The company markets its products to various original equipment manufacturers, original design manufacturers, contract manufacturers, and distributors. It operates in China, the Netherlands, the United States, Singapore, Germany, Japan, South Korea, Malaysia, and internationally. The company was formerly known as KASLION Acquisition B.V and changed its name to NXP Semiconductors N.V. in May 2010. NXP Semiconductors N.V. was incorporated in 2006 and is headquartered in Eindhoven, the Netherlands.

Source: https://finance.yahoo.com/quote/NXPI/profile?p=NXPI

2. Penn National Gaming, Inc. ($PENN)

Penn National Gaming, Inc., together with its subsidiaries, owns and manages gaming and racing properties, and operates video gaming terminals. It operates through four segments: Northeast, South, West, and Midwest. The company operates live sports betting properties in Colorado, Illinois, Indiana, Iowa, Michigan, Mississippi, Nevada, Pennsylvania, and West Virginia; Barstool Sports, an online sports betting app in Pennsylvania; and online social casino, bingo, and online casinos under the iGaming name in Pennsylvania and Michigan. It also owns and operates horse racetracks in West Virginia, Pennsylvania, New Mexico, and Ohio; and harness racetracks in Maine, Ohio, Pennsylvania, and Massachusetts. As of December 31, 2020, the company owned, managed, or had ownership interests in 41 gaming and racing properties in 19 states. It owns various trademarks and service marks, including, Ameristar, Argosy, Boomtown, Greektown, Hollywood Casino, Hollywood Gaming, Hollywood Poker, L’Auberge, M Resort, and MYCHOICE. The company was formerly known as PNRC Corp. and changed its name to Penn National Gaming, Inc. in 1994. Penn National Gaming, Inc. was founded in 1972 and is based in Wyomissing, Pennsylvania.

Source: https://finance.yahoo.com/quote/PENN/profile?p=PENN

3. Generac Holdings Inc. ($GNRC)

Generac Holdings Inc. designs, manufactures, and sells power generation equipment, energy storage systems, and other power products for the residential, and light commercial and industrial markets worldwide. The company offers engines, alternators, transfer switches, and other components fueled by natural gas, liquid propane, gasoline, diesel, and bi-fuel; and batteries and inverters. It also provides residential automatic standby generators ranging in output from 7.5kW to 150kW; air-cooled engine residential standby generators ranging from 7.5kW to 24kW; liquid-cooled engine generators with outputs ranging from 22kW to 150kW; and Mobile Link, a remote monitoring system for home standby generators. In addition, the company offers various portable generators ranging in size from 800W to 17.5kW; engine driven power washers; water pumps; outdoor power equipment, such as trimmers and brush mowers, log splitters, lawn and leaf vacuums, and chipper shredders; and clean energy solution under the PWRcell and PWRview brands. Further, it provides light towers, mobile generators, and flameless heaters; light-commercial standby generators ranging from 22kW to 150kW and related transfer switches providing three-phase power for small and mid-sized businesses; and industrial generators ranging in output from 10kW up to 3,250kW used as emergency backup for healthcare, telecom, datacom, commercial office, retail, municipal, and manufacturing markets. Additionally, the company sells aftermarket service parts and product accessories to dealers. It distributes its products through independent residential dealers, industrial distributors and dealers, national and regional retailers, e-commerce partners, electrical, HVAC and solar wholesalers, catalogs, equipment rental companies and distributors, and solar installers; and directly to end users. Generac Holdings Inc. was founded in 1959 and is headquartered in Waukesha, Wisconsin.

Source: https://finance.yahoo.com/quote/GNRC/profile?p=GNRC

4. Caesars Entertainment, Inc. ($CZR)

Caesars Entertainment, Inc. operates as a gaming and hospitality company in the United States. The company operates casinos, including poker, keno, and race and online sportsbooks; dining venues, bars, nightclubs, and lounges; hotels; and entertainment venues. It also offers staffing and management services; accessories, souvenirs, and decorative items through retail stores; and online sports betting and iGaming services. As of December 31,2020, the company owned, leased, or managed 54 domestic properties in 16 states, consisting of approximately 54,600 slot machines, video lottery terminals, and e-tables; 3,200 table games; and 47,700 hotel rooms. Caesars Entertainment, Inc. was founded in 1937 and is based in Reno, Nevada.

Source: https://finance.yahoo.com/quote/CZR/profile?p=CZR

 

Here are the company profiles of the outgoing components:

 

1. Flowserve Corporation ($FLS)

Flowserve Corporation designs, develops, manufactures, distributes, and services industrial flow management equipment in the United States, Canada, Mexico, the Middle East, Africa, the Asia Pacific, and Europe. It operates in two segments: Flowserve Pump Division (FPD) and Flow Control Division (FCD). The FPD segment offers custom and pre-configured pumps and pump systems, mechanical seals, auxiliary systems, replacement parts, upgrades, and related aftermarket services, including installation and commissioning services, seal systems spare parts, repairs, advanced diagnostics, re-rate and upgrade solutions, retrofit programs, and machining and asset management solutions, as well as manufactures a gas-lubricated mechanical seal for use in high-speed compressors for gas pipelines. The FCD segment provides engineered and industrial valve and automation solutions, including isolation and control valves, actuation, controls, and related equipment, as well as equipment maintenance services for flow control systems, including advanced diagnostics, repair, installation, commissioning, retrofit programs, and field machining capabilities. This segment’s products are used to control, direct, and manage the flow of liquids, gases, and fluids. The company primarily serves oil and gas, chemical and pharmaceuticals, power generation, and water management markets, as well as general industries, including mining and ore processing, pulp and paper, food and beverage, and other smaller applications. The company distributes its products through direct sales, distributors, and sales representatives. Flowserve Corporation was incorporated in 1912 and is headquartered in Irving, Texas.

Source: https://finance.yahoo.com/quote/FLS/profile?p=FLS

2. Xerox Holdings Corporation ($XRX)

Xerox Holdings Corporation, a workplace technology company, designs, develops, and sells document management systems and solutions in the United States, Europe, Canada, and internationally. It offers intelligent workplace services; and digital services that leverage its software capabilities in workflow automation, personalization and communication software, content management solutions, and digitization services. The company also provides desktop monochrome, and color and multifunction printers; digital printing presses and light production devices, and solutions; graphic communications and production solutions; and IT services, such as PC and network infrastructure, communications technology, and network administration, as well as cloud and on-server support services. In addition, it provides FreeFlow a portfolio of software solutions for the automation and integration to the processing of print job comprises file preparation, final production, and electronic publishing; XMPie, a personalization and communication software that support the needs of omni-channel communications customers; DocuShare, a content management platform to capture, store, and share paper and digital content; and CareAR, an enterprise augmented reality business that offers live virtual assistance technology focused on modernizing field service, customer support, and other IT Services. Further, the company operates a network of centers that digitize and automate paper and digital workflows; and sells paper products, wide-format systems, and software and IT services. The company sells its products and services directly to its customers through its direct sales force, as well as through independent agents, dealers, value-added resellers, systems integrators, and the Web. Xerox Holdings Corporation was incorporated in 1906 and is headquartered in Norwalk, Connecticut.

Source: https://finance.yahoo.com/quote/XRX/profile?p=XRX

3. SL Green Realty Corp. ($SLG)

SL Green Realty Corp., an S&P 500 company and Manhattan’s largest office landlord, is a fully integrated real estate investment trust, or REIT, that is focused primarily on acquiring, managing and maximizing value of Manhattan commercial properties. As of December 31, 2020, SL Green held interests in 88 buildings totaling 38.2 million square feet. This included ownership interests in 28.6 million square feet of Manhattan buildings and 8.7 million square feet securing debt and preferred equity investments.

Source: https://finance.yahoo.com/quote/SLG/profile?p=SLG

4. Vontier Corporation ($VNT)

Vontier Corporation engages in the research and development, manufacture, sale, and distribution of critical technical equipment, components, software, and services for manufacturing, repair, and servicing in the mobility infrastructure industry worldwide. The company offers a range of solutions, including environmental sensors, fueling equipment, field payment hardware, remote management and workflow software, and vehicle tracking and fleet management software solutions for traffic light control and vehicle mechanics’, and technicians’ equipment. Its mobility technologies products include solutions and services in the areas of fuel dispensing, remote fuel management, point-of-sale and payment systems, environmental compliance, vehicle tracking and fleet management, and traffic management; and diagnostics and repair technologies products comprise vehicle repair tools, toolboxes, automotive diagnostic equipment, and software, as well as wheel-service equipment for automotive tire installation and repair shops, including brake lathes, tire changers, wheel balancers, and wheel weights under the AMMCO and COATS brand names. The company markets its products and services to retail and commercial fueling operators, commercial vehicle repair businesses, municipal governments, and public safety entities and fleet owners/operators through a network of franchised mobile distributors, as well as direct sales personnel and independent distributors. Vontier Corporation was incorporated in 2019 and is headquartered in Raleigh, North Carolina.

Source: https://finance.yahoo.com/quote/VNT/profile?p=VNT