As the global COVID-19 pandemic gradually comes to an end, stock traders are already thinking about their strategies for the post-pandemic markets.
Whether you’re saving for retirement or just looking for some dividend income, it’s important to be aware of the new normal within the stock trading space.
In this guide, we’re going to examine the different things you can do to make a profit as you buy and sell inside a stock market coping with the new economic realities of 2021 and beyond.
- Avoid Trading on Forecasts
If 2020 taught us anything, it was that the forecasts from so-called gurus are nonsense. Nobody could have predicted the global pandemic and the economic chaos that swept the world. To compound matters, nobody could have predicted that despite all this the S&P 500 would rise 14% for 2020 as a whole.
Does this mean it’s time to stop incorporating forecasts and predictions into your trading strategy?
No, an increase in forecasting can signal future volatility. What it does mean is that smart traders managing their own investments need to block out the noise and focus on the technical and fundamental characteristics of any potential stock transaction.
- Be Prepared for Extreme Volatility
The markets are incredibly susceptible to volatility at this point. News, even if it’s not true, has the power to shift the financial markets.
The most common trading mistakes made by new traders is an inability to accept market shifts. Panic driven decisions can shatter your profits.
If you’re a new trader, consider the 80/20 rule. It states that 80% of your profits will be made in 20% of the time spent trading. In other words, most of the time you’ll be moving down or sideways.
The fantastic markets of 2020 are no indicator that you’ll be on a rocket ship to the moon in 2021 and beyond. Be willing to ride out the inevitable shifts of a volatile market over the next few years.
- Learn to Use Charts Intelligently
Charts are often dismissed by those who believe they can predict the future. Smart use of charts will never help you to predict the future. Instead, they are there to support your trading strategies. In a post-pandemic world, there’s nothing more important than being able to cut out the noise.
Learning to use charts effectively can help you do just that. They help to build discipline while giving you solid, real data to make decisions with.
If you need help using charts for the first time, we recommend checking out our review on TopStepTrader. This platform can help you to sharpen your skills.
- Avoid Being Drawn in by Speculative Investments
Traumatic times are ripe for speculation. The furor over Bitcoin, the GME short squeeze, and the Silver Squeeze are just three examples of speculative investments that will never allow you to become independently wealthy.
Expect more of these speculative investments to grab the media spotlight in the coming years. Smart investors will continue to stick to their tried-and-tested strategies.
Although investing in individual stocks from major corporations might be boring, they’re far more likely to lead to a profitable outcome than attempting to time volatile, speculative markets.
- Practice Incremental Trading
The markets are in unprecedented territory as a tsunami of retail investors enters the market. Studies show that 15% of current retail investors only started trading in 2020. Low-cost trading platforms like Robinhood have opened access to stock investing for the first time.
Unfortunately, this creates a new dynamic of uneducated, ill-educated investors who are throwing money at the stocks they believe are going to make them rich.
Go against the flow and practice incremental trading. Investing small, watching the action, and then investing according to specified parameters is a far superior trading strategy to treating the markets like a casino.
- Avoid Taking Out Leverage
Unpredictable markets are nothing new, but the uncertain economic waters ahead of us are bad news for investors who are thinking about taking out leverage. Although loaned funds can magnify your wins, they can also magnify your losses and completely blow your account.
Avoid following the herd and taking out a conventional loan in an attempt to hit it big. Intelligent traders are staying away from leverage and taking things slow.
Now is not the time to throw caution to the wind and go all-in.
Final Thoughts: The Big Winners of the Post-Pandemic World
You’re going to hear from traders who went all-in on “this really great stock” and made millions. However, the madness in the markets right now is going to leave a lot of people losing their shirts.
The best strategy in 2021 and 2022 is to build a well-diversified portfolio filled with stock picks that are based on real data, not speculation.
A cautious approach with an eye on ten, twenty years from now will ultimately carry the day in a post-pandemic world.