Being a trader

Trading requires experience, time and a cool head. If you haven’t got these things, leave it to the professionals.

The most common question we get asked as traders is, why didn’t we sell higher up, before it dropped.

On the face of it, of course this is a silly question, if we had known it was going to drop, we would have; but one thing we’ve learned over the last few years acting as trading consultants, is there are no silly questions and people just want to understand.

Where investments are concerned, and money is involved, everyone wants it to go up in a straight line, but this sadly, just isn’t realistic. It is this mix of greed and fear that makes most retail traders (non-professionals) lose money. An average of 75% of all retail traders, do in fact lose money.

When you watch our traders on The Portfolio Platform, it must look easy. As traders ourselves, we can assure you it isn’t.

If you genuinely think you know when it’s going to go up, or down, please do get in touch because it would save us an awful lot of time spent on research and analysis.

We often joke that hindsight is the best trader. Yesterday it was up, today it is down; why didn’t we sell out yesterday, and go short so we could make money on both days? We really do get asked these questions so we think it only fair to address them.

One of the worst things for an investor to see, is the market going up, and they aren’t making any money, or worse, they’re losing money because the trader is short – being short is when a trader has sold the market, so makes money if it drops.

Selling a market that empirical evidence would suggest has about a 70% chance of going up, is never easy. It does happen, and as an investor on TPP, you will have no doubt make money from such a position, but that is because we only host the best. Traders love making money when the market goes down, but it goes against the natural order of things, and happens very fast, so is incredibly hard to time.

We wrote an article a little while back about how emotion is one thing that leads to a trader losing money. If you stare at your position, you will always be asking yourself questions. You will fear it being wrong, you will be greedy if it’s right. If you sit and watch your portfolio, it is easy to quickly personify these emotions.

If the trader you’re linked to on TPP sells out, and the position goes up, you will be annoyed they sold out. If they don’t sell, and it goes down, you will be annoyed they didn’t sell out. After it has happened, it will seem obvious what they ‘should have done’, in the same way it is obvious which horse you should have bet on once the race is finished.

Given the amount of positions the traders hold and the number of trades they make, they won’t always be right. They don’t need to be. Their job, is to gradually increase your portfolio over time. If they’re right more often than they’re wrong, then you’re making money.

If a trader is short and the market goes up, the questions would be: ‘why are we short, the market is rallying?’, if the trader is long and it goes down, the question is: ‘why aren’t we short, the market is dropping’. This is usually followed up with a reason as to why it was too high, or too low. Any analyst worth his salt, could give you a reason why it’s too high while at the same time giving you a reason why it’s too low.

As an example, right now, we could say that the market is too high because of high inflation, debt trouble in China, potentially rising interest rates in the future, the US debt ceiling needs to be raised etc. etc.

We could say that it’s too low because the UK just reported 5.5% GDP growth in the last quarter, earnings are all beating expectations, inflation is temporary in the same way the fuel crisis is temporary. More money has been flooded into the system than ever before in history and bond yields are producing zero, so equities is the best place for it. Growth tech stocks are increasing in numbers and will start pushing old fashioned value stocks out of the FTSE 100 which should increase overall capitalisation etc. etc.

We would argue that all of the above is true. Add this to the growing trend of self-investing in the young, whereby professionals are less likely to put the money in a savings account and more likely to buy shares with it. That might not sound like it would have an impact but the current retail market in the US now accounts for around 25% of the market. It’s nowhere near that in the UK but as retail increases over here, so will stock valuations, and here is why.

Institutions have rules about what their funds need to buy, whereas these are the most common traits in retail investors:

• The majority are completely new entrants to the stock market
• Wide array of experience levels, but generally a low level of knowledge
• Primarily buy trades in the equity and bond markets
• Invest small amounts, but lots of them
• More willing to take large risks, greater freedom to experiment
• More likely to invest based on personal affinity
• Less likely to use traditional market data
• More likely to turn to social media for research and tips
• A massively growing influence on global markets

How do professionals make decisions knowing that 25% of the market is just ‘guessing’. It rather changes the dynamic. But, one thing it does do, is inflate stock prices and these high prices are here to stay. In fact, this is only likely to increase over time. Self-investing is fun, it is also dangerous which is why at The Portfolio Platform we have built what we have.

So, do we know what the market will do on any given day? No, but we often have a pretty good idea. If our traders are wrong, give them time. When a market drops, nobody knows where it will stop, so they will pick a level they are happy with, one that should make money, and they will buy. If the market stops falling at that very moment in time, and moves up, then they have managed to pull off what every trader dreams of: picking the bottom of the market. To put that unicorn to bed, we can tell you now, that doesn’t happen.

It’s not about what happens over the next day, or even the next 2 days, if the position is right, it will make money. A professional trader doesn’t get caught up in emotion. Put a trade on that you believe in, and if the fundamentals don’t change, stick with it. You’ll always be wrong before you’re right.

As investors in The Portfolio Platform, you get to feel the trades. You can see when they’re placed, you can see whether they’re up or down but remember that some trades take time to be right. Over emotion short term thinking loses money. Our traders are the best, so have faith in that and let them do their jobs.

We want you to have a sense of involvement, but we also recognise that it’s more likely to be profitable for you in the hands of experienced traders. The enjoyment and self-congratulation can be on choosing the best professional and the best strategy for you. If you don’t have hours, or days, to commit to research, you probably shouldn’t be guessing.

If you can see into the future, then you no doubt won the £153 million jackpot last night. If you know what the market is going to do tomorrow, then you will make a great trader yourself. If you can’t, and you don’t, you will have to make do with The Portfolio Platform, which we’re sure you’ll agree, is the next best thing to a crystal ball.

If you would like to speak to one of our team, please get in touch.


Click here to email one of the team at The Portfolio Platform

If you would like more information, please do not hesitate to contact us and one of our traders or directors will be in touch to discuss a bespoke portfolio that is best suited to you. You are the investor, it’s your capital, shouldn’t you have a say in what happens to it?

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