It has been a torrid time for short sellers since March 2020 lows. For almost 2 years, stocks and commodities have risen relentlessly. S&P has risen more than 100% during this time, lifting many boats in many markets. Many short positions have been decimated during this time, given the pervasive buy-the-dip mentality. Will shorting be profitable in 2022?
Shorting is far less popular than the traditional “longing” of stocks, commodities and other asset classes. The key reason is that losses from shorting can be theoretically infinite, while losses from longing can be at most 100% (given no use of margin/leverage). There is another reason – longing stocks/bonds will generate persistent income over time while shorting will actually cost money to sustain. Thus shorting has to be more precise, as short positions may cost too much to be held for a sustained period.
However, shorting can be an extremely profitable technique when it is successful. Stock and other asset prices in general tend to fall faster than they rise. Also, given that there are fewer traders shorting compared to longing, shortists would be competing with less people in the shorting game.
In much of 2020 and 2021, short trades have been crushed. However, with high valuations and impending policy shifts, would 2022 be a more fruitful year for short sellers? I personally believe so, but do be careful, as nothing is 100% certain in the markets, and shorting is more complex than longing, so do trade with care!
US markets performed strongly last night, with S&P ending at a new record. Perhaps Santa Rally has arrived. What a year it has been for US stocks. Looking at S&P, which arguably has the greatest influence on global markets, it has been on a tear since March lows. It currently sits at 4725.79, which is more than double of the 23 March 2020 low of 2184.88.
The fundamental driver is that Omicron appears to be mild and therefore less harmful to the economy. While this may be true, we need to remember that valuations remain sky-high and we are at the start of the withdrawal of extraordinary stimulus measures by most central banks. It is probably not the best time to enter massive long trades.
US markets are the most influential markets in the world, so any correction there will affect other markets as well. There is also the risk of inflation as well, so please be selective of your trades/investments. Good luck!
It is a period of low volume and high volatility due to the festive season. Market movements are more random, faster and greater in size. News flow is also somewhat muted. Thus there is less reporting of sentiment and/or fundamental changing events to help guide trading/investing decisions. I would like to share some trading and investing tips for this festive season.
Trading is more difficult due to the following:
the greater randomness in price action lowers the probability of success in trades
the larger price movements make risk management more difficult and increases emotional stress
I would advise to scale down position sizes and/or require more optimal setups before entering trades.
For investors, the high valuations of markets mean the risk-reward ratio is still not favorable. There is a significant possibility of a steep correction. However, the heightened volatility may cause larger than warranted falls in certain stocks or other asset classes, so it may be worthwhile to continue monitoring your favorite stocks to see if they can be picked up at good prices.
Trading and investing are a bit trickier during this period, so it is perfectly fine if you would like to use this chance to take break. If you have been working hard, it is a good time to take a breather and recharge for the new year ahead! Both mental health and physical well-being are important not only for optimal performance, but also for general happiness in life. So do remember to take good care of yourself!
I was a data analytics specialist in Singapore who got to know about the markets in 2010. In Dec 2021, I retired early from the corporate world by trading the markets, having accumulated enough trading profits. Below chronicles the steps I took in my trading journey.
I started off as a buy-and-hold investor, and bought only Singapore stocks via traditional brokerages. Profits were modest during these initial years.
I ingested mainstream investing guides and analyst reports, hoping to become an investment guru. However, I sadly remained a noob at the end of this phase.
Exploring Trading Possibilities (2012 – 2013)
I opened various CFD accounts to explore the trading universe. CFD platforms offered a wide range of markets and asset classes, and facilitated different trading styles. It was like Star Trek – CFD platforms opened up strange and wondrous new worlds to explore. I tried trading different markets, industries, asset classes and trading styles. It was a time of intensive experimentation and inconsistent performance.
I finally found a combination of trading strategy, trading instrument, asset class and market sector that worked for me. Collectively, I shall term it my trading framework. As I started to refine it, consistency improved and for the 1st time, I managed to earn a 6-figure sum from trading over a year .
It felt amazing, and I thought to myself, “Wow, it really is possible for trading to change my life!” I felt hope and excitement, but also recognized that I still needed to continue to improve.
Scaling Up (2015)
I worked on scaling up my trading position sizing to reap full benefits from my trading framework, and forced myself to endure the increased discomfort that every rise in position sizing brought. The process was akin to punching myself a little harder everyday to get used to higher levels of pain, and wondering why I was doing this to myself.
It was a painful process, but it was necessary in order to be able to generate enough profits to retire early via trading.
Implementing Trading Framework (2016 – 2019)
With the scaling up process finished, I completed the development of my trading framework. Position sizing is an important part of the trading strategy aspect of the framework.
I used the framework from 2016 to 2019 without major changes to it. Up till 2018, it proved to be reliable most of the time. I was coasting along, thinking I could continue to depend on it to retire early by trading. But it stopped working in 2019. Market behavior had unexpectedly changed and rendered it useless.
Upgrading Trading Framework (2020)
I reviewed my trading framework and made changes to it adapt to the changed market behavior. The upgrade was finalized in 2020. It was more difficult to implement than its predecessor. I had to be more aggressive and take more risks, while being nimbler and more adaptive to changes in market conditions. But it started working again, so that was all that mattered.
Retiring From the Corporate World (2021)
I decided to retire early from the corporate world in Dec 2021, having accumulated enough profits to feel comfortable living without a stable monthly income. Looking forward to spending more time with my family, continuing trading and pursuing other interests!
The most important lessons/reminders I gathered from my journey are as follows:
Be prepared to adapt your trading strategy to changing market behavior
Persevere on any idea that you have calculated to have a good chance of success
Avoid blindly following other trading strategies and principles, instead adapt them to your own personality and cognitive strengths
Do not be afraid to try out your own entirely original trading strategies
There is no such thing as absolute slam dunk certainty in markets
Stay humble even if you are successful, as it helps you keep true to your real self
Continue to spend time with family and friends, because they are more important than trading profits
Invest continually in your health to avoid disruptive and disabling health issues
It has taken 2 years of investing + 9 years of trading to earn enough profits to retire from the corporate world. I had a full-time job during these years, so it was tiring at times. I did not have a mentor, and I pretty much developed my own framework from scratch, so I probably took longer than some others to arrive at this stage. But one advantage of not rushing through the journey is that I had enough time solidify my foundation at each stage.
I hope that this sharing can help at least some of you in your own investment/trading journey. Please feel free to share your views or queries on this, I will be glad to hear from you.
Dear folks, thanks for visiting my site. This blog aims to monitor asset markets and provide useful info for traders. In the post-covid world, assets have much higher valuations than before, and it is essential to take this into account when trading.
I have been trading since 2012, and recently retired from the corporate world in Dec 2021 after accumulating a comfortable level of profits. I love trading, and I’m really glad to be able to share my views through this blog.