Trading stocks can be a very competitive endeavor to get into. Large corporations, hedge funds, and other professional financial managers have long held a distinct advantage over the average trader by utilizing proprietary complex financial analysis algorithms coupled with mainframe computers and streaming market data to achieve investment results that are far superior to the “diversify and rebalance” strategies they sell to the public.
Instead of competing for limited resources in zero-sum content, as in most other businesses, stock traders compete against the market in general, attempting to protect profits and minimize losses. As a trader, whatever approach you take, there are a variety of ways you can gain a competitive edge over others in the market, even those large corporations.
How to Gain A Competitive Edge Over Major Indexes in Stock Trading
In this blog, we are going to review some ways that you can be more susceptible to greater profits than major indexes would. Combining these rules can help you create a competitive trading strategy tailored to your personal investing style and goals.
Invest Only in Industries You Understand
When choosing which industries to invest in, it is best to invest in those that you have a solid understanding of, either as an insider or a long-term customer. Working within industries that you have experience with can give you the benefit of extra insight and knowledge into the more subjective qualities of different companies, such as the attraction of upcoming product releases, the reputation of incoming administrations, and the integrity of business models in specific industries. Not having knowledge of an industry you are investing in can lead to missing essential insights that those with experience notice immediately. Combining industry insights with the technical and fundamental data can increase a trader’s chances of making the right investments.
Practice Robust Risk Management
Risk management is an essential factor to minimizing losses and protecting profits in your trading strategies. For best practice, daily losses should be limited to a certain percentage of each day’s total account value. Stop-loss orders should be used to ensure that you do not lose more than you had originally planned for. Remember, never let emotions interrupt your trading rules, whether positive or negative. Not trusting the statistical advantage of your strategy can lead to crippling losses as well as the loss of your competitive position, as unnecessarily large and uncontrolled profit losses can take days, weeks or even months to earn back.
Conduct Your Own Research
Try to avoid making decisions based on the headlines of financial news sources, as this can negatively impact your competitive advantage. Typically, by the time you hear about these new trends, by the time you are able to respond, it will likely be at or near its end, leaving you with an unwise trade. By performing your own research and analysis, to discover companies that are strong in metrics and that appeal to your personal risk management guidelines, time horizon, and trading objectives.
Avoid trading based on rumors, news headlines, hunches, or feelings. Create your own system focused on essential fundamental and technical factors that fit with your trading style. Ensure trading criteria are clearly defined, and never break them. Sticking to the rules can allow the statistical advantage of your strategy to work, keeping you more competitive than less-disciplined traders.
Automate Strategies With Algo Trading
Automating your strategy has a variety of benefits. Automated trading systems allow traders to backtest their strategies, eliminate emotions from investing, and ensure consistent and diversified trading. Not to mention, it’s less time consuming, as everything is automated. Automatic trading platforms give traders the ability to fully automate their trading strategies, executing trades based on the predefined rules of their strategy. Once a strategy has been selected by a user, the market is monitored to find profitable buy or sell opportunities based on the specifications of that strategy, giving a competitive advantage over market competitors.
By following these tips, you will be more likely to have a competitive edge over others in the market. With AlphaDroid, a premier automated trading platform, traders can gain an advantage and compete with large corporations and professional financial managers. To learn more about AlphaDroid, contact us today!