Recently there have been a lot of large fast moves in the financial markets, due to the recent stock market crash, and this has also affected the forex markets, so I am going to share the 2 best trading strategies to tackle such situations.
Although they are quite rare in the stock market, such fast moves are actually quite common on the intraday market, and professional day traders who do news trading or intraday trading will be quite familiar with them.
When I was trading professionally, we would see such sharp moves a few times a week, be it a market crash or market spike.
For retail traders, the best trading strategy is to stay out, and wait for dust to settle before coming back into the market. The idea is to stick to your area of competency, if your trading strategy is not suitable for fast markets or news trading.
For those who want to try out fast trading in the stock market or forex market, there are 2 basic trading strategies: 1. Breakout trading + momentum trading 2. Fade extreme moves, like overbought or oversold conditions
The most important part of any strategy is to have a gameplan before you enter the market, or else you will part of be someone’s gameplan.
Your game plan should include your trading strategy, and specific points you will have your entry, stoploss, target, etc.
This way, once the market is open, you can just focus on execution instead of trying to strategize and execute at the same time.
This is especially important if the market is moving fast, or during a market crash, because there is no time to think, and very emotional, hence it would be impossible to make good trading decisions on the fly.
You will end up trying to chase every price movement, and you will always be one step behind those who have a solid game plan and a consistent trading strategy.
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Daily Leverage Certificates (DLCs), since its launch in 17th July 2017, has been gaining attention in the local scene. InsideINVEST talks to Alvin Li from Societe Generale and Spencer Li, a well known trader in the local community on what to expect of DLC.
Retail Investors will tend to think of DLCs as a complex product. How will you simplify it for retail investors?
Alvin: DLC has been introduced to the market for one year. From our discussions with investors over the past year, I think many of them actually find this product easy to understand. A 7x Long DLC moves 7% for every 1% increase in the underlying asset (before costs and fees). I think it is intuitive enough.
Spencer: At first, investors may take a bit of time to understand the features of the product and how its prices are linked to the underlying index. But once they get the hang of it, they will find it a simple and useful product to capture moves in the general stock market. Also, since it is not traded on margin, investors will not risk losing more than what they put in.
What are the significant new developments of DLCs since its launch about 1 year ago?
Alvin: We first started by launching 10 DLCs on SGX July last year. The first batch of DLCs includes 3 times and 5 times leverage, long and short on three equity indices, namely Hang Seng Index, Hang Seng China Enterprises Index and MSCI Singapore Free Index. Then earlier in Jan this year we expanded the leverage to 7 times. Nowadays most of the trading activities are on the 7 times.
In your view, what kind of investors are best for trading of DLC?
Spencer: Because of the daily compounding effect, DLCs are better for short-term trading, and for strong trending markets, hence it would be a perfect fit for intraday trend traders. This means that a trader does not need to know the specifics of every stock; all he needs to know is the general direction of the local stock market (via indices) to profit from it. In addition, this also protects the trader from the volatility of individual stocks.
DLCs can also be used to hedge any short-term downside risk for an investment portfolio. If you anticipate a market correction coming but do not want to sell your stocks, you can use the Short DLC to hedge and protect your portfolio from any losses.
What is the one key feature of DLC that appeals to retail investors?
Alvin: I think DLC is simple as mentioned before. Also, the fact that it is listed on the SGX makes it a transparent product. Compared to CFD that is over-the-counter, different CFD provides may show different price, but if you trade DLC there is only one price at a time, because it is listed on the exchange. We also publish our costs and fees on our website on a daily basis which makes the product more transparent.
What is your trade plan for DLC and what are the risk involved?
Spencer: As mentioned previously, DLCs are good for short-term trend trading, and it allows traders to go both long and short, by buying a Long DLC to express a bullish view and buying a Short DLC to express a bearish view.
One popular strategy is to apply a multiple timeframe approach, for example if the daily chart of the Singapore market (MSCI Singapore Free Index) is bearish, one can then zoom in to the 5-min or 15-minue intraday chart to find good short entries, and take a short trade by buying a Short DLC.
And because of the leverage involved, not much capital is required, so it allows traders who are very confident of the trend to make larger bets with a small amount of capital to maxismise returns. Of course, this will increase the risk as well, which is why a trader needs to be good in analyzing the trends, and applying proper risk management.
How is the market response to DLC so far and are we expecting further enhancement to the product in the next 1 year?
Alvin: I think DLC has received very good tractions over the past year. It has traded over S$ 3 billion since its launch. And the outstanding value (position held by investors) has also been on a steady uptrend. We are now working on expanding it to single stock counters, on both Hong Kong and Singapore stocks, subject to regulatory approval.
To sum up, what is the one piece of advice that you will give to retail investors, encouraging them to add DLCs into their portfolio?
Alvin: I think understanding your product is the most important to successful trading and investing. I would suggest investors, especially those who have not traded the product before, go to our website dlc.socgen.com to learn and make sure you understand the product. I would also suggest they proactively give us feedback so that we know what they want and how we can do better.
Spencer: There are many different products available to traders in the market, but the most important thing is to find a product that fits your trading style and personality. DLCs contain many unique features that allow short-term traders to profit from strong moves in the stock market, and I think it is a good idea to read up and learn more about this product to see if it is a good fit for you.
To help you get started, I have compiled a comprehensive database of practical trading knowledge and strategies, including many good articles about DCLs: https://synapsetrading.com/synapse-online-academy
When it comes to trading, most people think that trading is stressful and boring because it involves staring at a screen the whole day and watching prices move, and then having to execute trades at lightning speeds to make any profits.
That is quite often what is shown in the movies, and very much dramatized.
In reality, there are many different kinds of trading, and here is a simple infographic depicting the main categories.
Source: Forex Useful
Generally, what you see in the movies tend to depict scalpers and day traders, which is the most stressful kind of trading. I myself tried it for a couple of years, but it started to take a toll on my health, which I decided was not worth the money, even though it was pretty good.
Hence, I find that the most useful kind of trading for anyone who is doing it part-time, or does not want to get too stressed out, is to use a swing trading approach. This means taking tactical positions to capture the medium to long-term trends.
With just 15 minutes a day, it is more than enough for me to place and manage my swing trades, which leaves me more free time to focus on the things that matter in life.
Of course, there are some drawbacks to swing trading as well, for example your income will be more lumpy as compared to intraday trading, and you will need a ton of patience in waiting to enter the perfect trades, and also waiting for trades to play out.
In summary, the type of trading style really depends on each individual personality and amount of free time, but personally I prefer to use the swing trading approach because it gives me the best returns for my time and effort.
Do you know what is your preferred style, and does it play to your strengths? 😀
https://i2.wp.com/synapsetrading.com/wp-content/uploads/2018/05/stressed-traders.jpg?fit=494%2C345&ssl=1345494Spencer Lihttps://synapsetrading.com/wp-content/uploads/2019/10/logo.jpgSpencer Li2018-06-13 23:21:092019-12-24 22:36:56Swing Trading vs. Intraday Trading: Which is Better?
After our last few trades, including a short position on the STI index, and a short position on the NZD/USD (which we closed and switched to long on a new setup – updated real-time), and tomorrow we are watching for a few new trades to enter.
One of our latest trading opportunity is a bearish trade setup on the H4 timeframe of Gold, which we have now converted to a risk-free trade by shifting our stoploss to breakeven. This means that even if the position goes against us, the maximum amount we can lose is our open profit, and not any of our precious trading capital.
This coming Thursday, I will be doing a live demonstration on how I pick these trades, and reveal the latest trading opportunities. I will also be talking about the majors that affect the big moves in the market, and how you can build a portfolio that can do well in all market conditions, so that you do not have to worry about the stock market crashing.
We just took a new LIVE trade on NZD/USD on the H4 timeframe, and the trade parameters (EP, SL, TP) are indicated on the chart.
The NZD is one of the most bearish currencies at present due to the easing cycle of the RBNZ.
The USD remains the strongest currency in the longer term. Fed Fund Futures currently price a rate hike in March, with October at less than 10% and December around 30%.
Source: Forex Useful
