The Platform has been running for a while now, and we often get many of the same questions. There are no silly questions
September 2, 2021
The Platform has been running for a while now, and we often get many of the same questions. There are no silly questions when it comes to trading. It is a very complex and difficult job, but we’ve been doing it for so long now, that sometimes, we forget that our users don’t always understand how the traders make the money they do..
The first thing to note, when looking at trading and how to make money, is that nobody has a crystal ball. It’s extremely hard and nobody knows when the market will turn one way or the other; put all the information you have together, and make the most informed decision you can.
Have a strict set of rules, when to get in, when to get out, and stick to them. If you fall foul of emotions you will undoubtedly make the wrong decision. This is one of the reasons we don’t allow anyone to know the identity of our traders, and unlike any other investment site like ours, we don’t allow the autotraders/investors, to talk to the traders.
If we did, the most commonly asked question would be, ‘why didn’t you sell higher up?’; closely followed by ‘why didn’t you buy lower down?’.
Let’s address these two questions. Once again, I would reiterate that no trader has a crystal ball, and while we have a better idea of most as to when the market might turn, nobody ever picks the top, or the bottom.
If you are looking at your equity balance on The Portfolio Platform, and it is lower than it was yesterday, you might wonder why the trader didn’t sell out yesterday. To many this is a silly question, but if you haven’t traded before, it might not be, and it’s one we’ve had a few times.
The fact is, the trader didn’t know it was going to be lower today than yesterday; if they had, they would have sold out. Traders are not magicians and their knowledge will lead to profit over time, but not every time.
You have to bear in mind that you are looking at a portfolio with the benefit of hindsight and hindsight will always be the best trader of all. The fact is, nobody can be sure whether it will go up or down from one day to the next. BUT, we can make decisions based on the most likely outcome which will result in profit more often than not.
Buying at the low, or selling on the high, might happen on occasion, but I would liken it to a golfer getting a hole in one. They could hit the same shot 50 times, and once, it might go in, but the more likely result is, it will get close most of the time, and that will be good enough. A strategy could trade by the same rules, be hugely profitable, but might never get the top, or the bottom.
A trader must forget about the ‘holes-in-one’. It happens, but it’s not what makes the best golfer, or in this case, the best trader. It’s all about averages. The best golfer in the world, might never have made a hole-in-one, but he averages the best scores over 18 holes, over time.
This part is key. A trader with the best results is one who performs consistently, over time.
At The Portfolio Platform, we select our traders carefully. We aren’t looking for anyone to make huge returns in a day, or a week; we want returns over time. We want investors to make money, every year, but we know full well, that during that year, there will be winning trades, and there will be losing trades.
One of the problems we have created for ourselves, is by being so transparent. Our users (you) can see your position and overall equity of your account at all times. The reason this is dangerous, is the same reason 80% of retail (not professional) traders lose money: emotion.
To be a profitable trader, you have to trade by a strict set of rules. It is these rules that make the ‘Strategy’. By implementing an algorithm, you are doing the most important thing of all, and taking emotion out of the equation. It is the single most common reason that investors lose money.
Every time the inexperienced trade, there are 3 emotions that will creep up: greed, fear & regret. Often these emotions will overpower any amount of logic.
You place a trade, it goes up in value, it even reaches the level you wanted to sell at, BUT, you get greedy and think “How much MORE can it go up?”, “This is just the beginning, if I just hold onto it a little bit longer I’ll make even more”.
Once the trade has done what you wanted it to do, sell it out. It doesn’t matter if it keeps going up for a bit. You made what you wanted to make, so take the profit, pat yourself on the back, and wait for the next one.
If you don’t sell out and it goes back down, you won’t have made any profit at all, even though you were right!
When we hear that someone has made a lot on a trade, we always ask how much profit has been taken? Often the answer is none. If that is the case then any profit is only hypothetical. The stock could drop back down, and make nothing. Only booked profits are realised profits.
Another common mistake is increasing the investment rather than selling out. If the algorithm you have built, says it is a good time to buy more, then buy more, but if you are simply buying more because it’s going up, you could lose your profit twice as quickly.
If you buy 10 shares at £20, and it goes up to £28 as you had hoped: you have made £80. If you then get greedy and think, ‘this is easy, I’ve got this, I’ll buy another 10’, it now only needs to drop to £24 for you to have lost all your profit (20 x £4 = loss of £80).
In this case, even though you were right, and the share went from £20 to £28, you haven’t made a penny.
In fact, if the share drops back down to what you originally paid for it, you’re actually now down £80, rather than up £80, because you got greedy.
Every trader experiences fear no matter how experienced. It’s managing that fear, and knowing how and when to ignore it that will make profit. Having a strict set of rules helps override this fear. I will buy at £20, and I will sell, if it gets to £28.
Knowing this, whatever happens in-between isn’t important. The only thing that might change, is the world around you and if this means that your model suggests getting out of the trade because the variables are different, then get out.
The fear of losing money can cause you to sell the stock as soon as it goes down in value. Nobody likes losing money. If you pay £20 for the stock, you cannot expect for that to be the cheapest it gets to while you hold it. That would be the stuff of legend. It will almost certainly get to a lower level, but you paid £20, because you believe it will reach £28 in time.
If it hits £16 first, you might sell because you now fear losing more money. Again, you could be right and the stock then rallies to £28, only your timing was wrong.
The fear of loss is a much more powerful motivator than potential profit. If it wasn’t, insurance companies wouldn’t exist.
FOMO, or fear of missing out, is such a common phrase it has become a well know acronym. Everyone is buying this stock and it’s gone up; ‘I will buy it as well even though I have no information suggesting it is cheap’.
This has fuelled the retail market over the last year or two and leads to an inflated stock price that will eventually, always, fall back down. If the move has already happened, you have missed it, move on. Don’t succumb to FOMO.
Lastly, we have regret. This one we hear all the time, people regret buying a stock, people regret not buying a stock, selling too soon, not selling soon enough, etc. And then they think they won’t make that mistake next time.
If we use the same example as before, you buy a stock at £20, looking for it to reach £28. Then it gets to £28 a month later, you do the right thing according to your model, and sell out. It then goes up to £32, at which point, you fear you’ve sold out too soon and now you’re missing out on profit so you buy back in.
The stock now only needs to drop to £24 for you to have lost all your profit from the initial trade.
This works similarly on the downside. You buy the stock for £20, but it drops to £16. You sell it out because of the fear of losing more, it goes back up to £20 at which point you regret selling it out so you buy it back. Now it goes up to £28 and you sell out BUT, you have only made £4, even though, once again in this scenario, as with all the others, you were right.
In short if you haven’t decided what you’re looking for from a trade, you could go through all 3, in quick succession.
The stock goes from £20 to £28. Greed will make you hold on, fear of missing profits will make you hold on, then you will almost certainly regret something regardless of the outcome.
The stock goes from £20 to £16. Fear will make you sell out, greed will make you buy back when it comes back up, then once again you will almost certainly end up regretting something.
In every scenario, if you don’t know what you’re doing, you’ll be riding an emotional roller coaster every time and you won’t make any money.
Buying the bottom and selling the top, is like searching for a unicorn. Be happy with profit, and keep looking to build on that profit. Small gains over time, make bigger gains.
We have selected the best traders we can find from all over the world and we know how to do this because we are traders ourselves.
Our traders are not in it for the glory. It’s not about ‘the big short’ or a ‘quick million’. They have rules and risk parameters and we make them stick to them. This might mean some days a strategy will profit, and some days it will lose money. If you get emotional, your response will almost certainly be the wrong one.
Now that you are on The Portfolio Platform, you can see every trade that is made. You will experience many of the emotions I have described, but rest assured, our traders know what they’re doing and over time, their profits speak for themselves.
Have faith in the figures. Our performance records cannot be faked, they are 100% accurate and verified.
If you wish to book a call and speak to a member of the strategy selection committee, please click here.
“TPP might just be about to revolutionise investment for the retail market.”
- London Stock Exchange 2020