The Australian Securities and Investment Commission (ASIC) has recently warned against retail investors leaping into trading exchanges in a panic trying to recoup losses of both investment and income. ASIC has further expressed concern that amateur traders will likely not match both the money-management and sophisticated risk mitigation seen in their professional counterparts.
ASIC states that even professional traders can struggle to time the market consistently. Tower Tech agrees with this sentiment, as we have spent a long time honing and perfecting trading methods that are able to cope with any occurrence of what is often termed ‘market irrationality’. The team pays close attention to finding ways to offset sudden market position changes, using methods such as direct-hedging and dynamic real-time automated trade management, to make sure our algorithms can weather the storm of a sometimes very chaotic market.
The trading development team at Tower Technology learned these lessons the hard way, journeying from manual traders starting out our careers using higher than acceptable risk and unsophisticated trading methods, to the successful trading technology company we are today. This path was fraught with costly mistakes and an obsessive desire to always improve and become profitable by essentially minimising risk at any opportunity. Money-management can make even a basic strategy pull-through, but it takes time, discipline and patience to develop a consistent, working strategy.
As ASIC have warned, now is not a time to be developing such a strategy. The markets are volatile and irrational during times of economic strife. Retail/amateur investors may open positions that are leveraged too high, set stops that are too close to their original entry and have a close trade in loss almost instantly due to a sudden spike in the opposite direction of their entry. They may chase loss, opening a trade almost instantly after the previous position ended in loss. They may close off a winning trade too early, or conversely let a winning trade go to long and erase the profit they have made.
Now is the time for professional traders. Companies that have fully automated algorithms that work on the exchange and are devoid of emotional decisions. Even the professional trading houses that may still execute trades manually for some reason, will have a strategy that they will likely have perfected over at least five years, and will not deviate from typically.
ASIC has stated that their data shows that the new day-traders flocking to the exchanges in order to try and beat the market have not exactly covered themselves in glory. The team at Tower understands the allure of so called ‘easy money’ using CFDs and high leverage, we wish to echo the sentiments of ASIC in this regard by saying it is anything but easy making consistent returns on the exchange.
It typically takes years to get right.