Five Tips on Choosing the Right Investment Strategy for Your Investment Style
“One cannot separate economics, political science, and history. Politics is the control of the economy. History, when accurately and fully recorded, is that story.” – J.W. Smith.
It is no secret that we are currently living under tough socio-economic and geopolitical conditions. Conflicts continue to break out all over the globe. Every time one source of conflict has been resolved, several others break out shortly afterwards. Currently, some of the major ongoing conflicts include the grinding war in Syria, tribal conflicts in several African countries such as South Sudan, Mali, and Burundi, the flare-up of hostilities between the pro-Russian separatists and government forces in Ukraine, as well as the localized conflicts throughout Latin America between drug dealers and government troops.
Global socio-economic and geopolitical turmoil
When considering the world’s current state of flux and turmoil, we cannot forget the impact of last year’s Brexit vote and its upcoming resolution, as well as Donald Trump’s radical utterances concerning the USA’s relationship with the rest of the world.
There has also been an increase in terror attacks, which has prompted large parts of the Western World to refuse entry to refugees from the above mentioned war-torn countries. Given the breakdown of local governments, the host countries are having difficulties vetting applicants. This means that they cannot tell the difference between bona fide refugees fleeing the conflict, and terrorists who are hell-bent on causing mayhem and chaos through acts of death and destruction.
The geopolitical uncertainties related to the events mentioned above are usually but not always mirrored by the global financial markets. In an interesting break from the market’s expectations, the latest figures from the Dow Jones show that, in spite of Trump’s brash and pompous statements, “the Dow [Jones] remains above 20,000 points and continues its record gains despite the economic uncertainty following President Trump’s first weeks in office.”
On further investigation we note that the Dow’s gains in January 2017 were primarily due to Apple, Boeing, IBM, and Visa’s ability to mask the actual results. Is it even possible to trade successfully under such volatile conditions?
Choosing an investment strategy
“If you want to be truly successful at options trading, consistently making money, maximizing your potential profits and limiting your potential losses, then being able to accurately predict price movements of financial instruments is unlikely to be enough by itself.”
I believe that it is possible to invest successfully in the global financial markets during these uncertain times. Consequently, here are five tips to help you choose the right trading strategy to suit your investment style:
Part of determining the right trading strategy for you is to ensure that you have laid the groundwork for success. You need to choose the right broker, find worthwhile investment opportunities, and write up and follow a sound trading strategy. In other words, you need to have a clear investment blueprint that spells out your investment goals in clear, concise steps.
Once you have laid the groundwork for your plan of action, you can start taking a close look at the types of underlying assets that are available and which of those assets you wish to trade on. Most online brokers offer the following categories of underlying assets: Forex, Commodities, Stocks, and Indices.
Levels of risk
What do you intend your risk profile to be? In other words, how much risk are you prepared to expose your investments to? For example, you can either make conservative high-value long-term investments, where it does not matter when the bottom drops out of the market in the short- to medium-term, or you can place low-value high-risk trades that open and close within a couple of minutes from each other.
Simple or complex strategies
There are trading strategies that are very simple and usually only involve a couple of transactions. On the other hand, some trading strategies are so complex that they require a large number of transactions to conclude. I believe that, under the current circumstances, it is prudent to keep your trading strategies as simple as possible.
Single or multiple positions
You can utilize multiple positions when setting up a trade; consequently, this reduces your risk portfolio, as well as the upfront cost of the trade. On the other hand, opening and closing a single position during a trade is cost-effective and simpler than an options spread. That being said, your risk profile will usually end up being increased.
These five tips will help you choose your overall trading strategy. In summary, I believe that the best trading strategy for the current market conditions is either a very short-term strategy where you leverage the price volatility to grow your wealth, or a long-term strategy where you sit out the market instability.