What the Trading Strategy 2019 Could Possibly Be
Fear may be the dominating factor currently, but a possible 2019 recovery could see something similar to a situation seen in 2010/2011. What is your trading strategy 2019 looking like?
Advanced trading software helps in more efficient online stock trading. But for successful trading, you need a deep understanding of the stock market.
There are various factors that control the stock market. One of these is the human element that is often not thought of when making moves. Moves made in the stock market can often be a reflection of human nature, reckons seasoned analyst Martin Tillier. Prices are moved by what the majority of traders desire – whether to buy or to sell. Be it long term investing or short term trading, the participants are looking to predict others’ actions.
The Fear Factor Dominates
Currently there is an environment of fear, since we’ve been witnessing a market collapse. And as we’re rushing towards 2019, we need to figure out the moves traders and investors might make next year. For that, we may need to take a retrospective glance at another period when fear was such a dominant theme in the markets. Yes, you’ve guessed it – a look back could give some clues as to what moves traders and investors could likely make next year.
Looking Back at 2008/2009 and 2010/2011
Martin Tillier draws a very important point regarding the last time fear played such a major role in the markets. That was ten years back, during the period of 2008/2009. Back then, the mass selloff was motivated by a real financial crisis which developed into a real recession. This time though, there really isn’t an actual crisis that has happened but just a fear of the worst-case recession scenario actually striking.
We can’t say it won’t happen at all, but neither is there any strong indication that it should happen at any cost. If the worst-case scenario doesn’t strike next year, we will find the markets in the state of recovery. For this, Tillier likens the situation to 2010/2011 where the specter of fear was still looming and dictating people’s investing decisions.
Comparing 2018/2019 with 2010/2011
Back in 2010/2011, though the ideal strategy would have been to get hold of aggressive, high risk growth stocks, there were still thoughts about the collapse in the minds of investors and the recovery was at a pretty early stage. Investors didn’t generally have the capacity to handle all that volatility. So they stuck to a strategy that is safer. The consensus then was to buy stocks of companies with an encouraging balance sheet. The shocks of any potential volatility were then thought to be absorbed by getting hold of stocks paying a reasonably good dividend.
Tillier points to a chart depicting the Vanguard High Dividend Yield ETF ($VYM) as it was from 2010 to 2012:
The price of the ETF almost doubled during that period, as you can see. This was even without the dividends being accounted for. That is probably the cause for a minority opinion suggesting the strategy of acquiring high dividend stocks for 2019. If we see some kind of a recovery next year, Tillier believes there would be many to follow this approach.
Fear Could Give Way to Optimism
Right now we have fear dominating the mindset of traders and investors. But when we look back at 2010/2011, as the recovery kept progressing and getting stronger, there were more risky choices made. You wouldn’t find that situation during the early recovery phase though, as you look back at that period. In that stage, the preference was for dividend stocks that were relatively safe. Tillier says we could see that trend now, though the circumstances of both these periods are different. This past week’s rally should alleviate some of those fears.
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