Learn to Invest – Advanced Level
Advanced traders come with experience and knowledge of stock markets. They have access to better tools and technical indicators than beginners.
Planning is of utmost importance for investors at all levels. At the advanced level, investors can use different products, use leverage, technical indicators, and different strategies to maximise returns on investment.
Advanced traders use different trading strategies and tools to make profits. They often pursue aggressive trading plans. They invest in speculative instruments and volatile asset classes to make quick profits.
Let us analyse a few key topics of interest for investors at an advanced level.
Access the Right Tools
Having the rights tools can make a substantial difference in your investment planning. You can use both fundamental and technical analysis at any stage of the trading plan.
Using technical analysis is more important for advanced investors. Since they look for quick gains through deploying multiple trading strategies at times.
Technical indicators including charts are key components of technical analysis. You can use leading indicators (for predictions) and lagging indicators (historic analysis).
Some of the commonly used technical indicators and charts are listed here:
- Moving Averages
- Moving Average Convergence Divergence (MACD)
- Stochastic Oscillator
- Bollinger Bands
- Accumulation / Distribution Line
- Fibonacci Retracement
- Relative Strength Index (RSI)
- Candlestick or bar charts
Investors can use technical indicators matching their trading strategy. The aim should be to get valuable insights into price and volume trends.
There are a number of advanced trading strategies and products to choose from. The choice will largely depend on your risk appetite and financial objectives.
Let us discuss a few of the widely used advanced trading strategies.
Short-selling or shorting is an aggressive trading strategy that speculates the fall of an asset’s price. Traders can take advantage of falling prices as well with shorting.
Active traders use shorting for speculations and profits. Investors can use this strategy as a hedge against market risks as well.
Value investing is a long-term investing approach. The goal with value investing is to identify stocks that do not fully reflect their potential in their prices. Simply, it is finding undervalued stocks.
Investors can use quantitative and qualitative analysis to find undervalued stocks. It may take a long time before your picked stock can reach its true value.
Growth investors invest money aggressively in growing stocks. These companies are often young and aspiring.
Growth stocks grow in value quickly. However, it is a risky investment strategy as most of the growth stocks are young and less established companies.
Some investors go with the flow of trading trends. They find stocks with upwards price trends as they believe the trend will continue. Similarly, they may use shorting for stocks with a downwards trend.
Using Margin for Aggressive Trading
One of the key aspects of aggressive trading strategies adopted by advanced traders is the use of margin trading.
Margin trading refers to the use of leverage offered by online brokers. In simple words, it is trading with borrowed money.
Some aggressive trading strategies like shorting wouldn’t be possible without margin trading. For instance, shorting involves buying stocks (or any other asset) before it falls in price to sell.
Margin trading offers low-interest borrowings for investors. Investors can take advantage of leveraged money from borrowers to make large trading moves.
Margin trading works like a line of credit. Investors do not need recurring approvals as long as they maintain margin levels with the broker.
Options trading is a sophisticated task than stocks trading. It is riskier than stock trading. That’s why it offers higher rewards to investors as well.
Options are contracts that give an investor a right to buy or sell an underlying asset at a set price before the expiration date. Hence, investors can speculate on the price movements of stocks either way.
Options trading is different from stock trading. Even if the stock is moving in the direction you anticipated, it doesn’t mean the Option will follow the same trend.
Similarly, timing the Options trade and choosing the right action can impact your profits. You can choose to let an Option contract expire, rollout an Option, or get an assignment.
Forex trading is the world’s largest trading market. It is accessible 24/7 and comes with thousands of currency pairs.
Forex trading is often used for hedging. It is also an active trading strategy to make profits. Advanced traders can take advantage of the liquidity of the forex market to make good profits.
Investors can imply different forex trading strategies. Some of the common forms of forex trading include forex Futures, Forwards (or FRAs), and Spot Rate contracts.
Forex pair prices are often derived by speculations. Higher liquidity and accessibility of the forex market make it a preferable market for all types of active traders.
Advanced traders invest in derivatives and contract-for-difference (CFD) products. Derivatives are instruments that derive their prices from an underlying asset.
There are several types of derivatives that investors can use to invest in. Derivatives for stocks, bonds, commodities, and currencies are commonly traded.
Some common forms of derivative contracts are Forwards, Futures, Swaps, and Options. All of these contracts derive their prices from an underlying asset such as a stock or a currency.
Derivative trading is speculative and offers higher leverage than conventional trading. Thus, investors can use fewer funds to make larger trading moves.
CFDs are other commonly used forms of derivatives with online brokers these days. CFDs also offer higher leverage to investors. Investors do not need to exchange assets with CFDs.
CFDs allow investors to use any trading strategy. Investors can speculate on a price movement in either direction. Short-selling is a popular choice with CFD trading as well.
Investing in Volatile Asset Classes
In addition to traditional asset classes, advanced traders take a shot at high volatile assets such as cryptocurrencies.
Cryptocurrencies such as Bitcoin are digital currencies that trade with high volatility. Higher volatility for investors means an opportunity for higher returns as well.
Cryptos like Bitcoin have remained highly speculative and risky investments. However, traders at the advanced level can take advantage of the price movements and volatility of these asset classes.
Spreading the Risk with Diversification
Portfolio diversification remains a key part of the trading strategy for any trader. Even aggressive traders who invest a large proportion of their investment in stocks would seek diversification.
Investors can attain diversification in various ways. Investing in different asset classes, different industries, investing in mutual funds, and index funds are some of the common forms of diversification.
The other way to spread trading risks is to plan proactively with your trading strategy.
Instead of using some of the aggressive trading strategies above, you can use a conservative trading style like dollar-cost averaging.
The dollar-cost averaging is a strategy where you invest an equal amount of money at regular intervals in an asset. It does not fully eliminate the risk but it reduces the risk substantially.
Learn more about this here
Another key point is to plan a clear exit strategy in your trade plans. Many investors do not follow an exit point. Hence, they keep losing money when their strategies do not work.
Investing at an advanced level involves taking higher risks. Investors use aggressive trading strategies and invest in speculative instruments. Most investors invest in highly risky and volatile instruments.
Using effective risk management methods can mitigate risks and keep the profits consistent.
A few links to help you
Simply Wall Street is a great tool that does a lot of the hard work for you
Yahoo Finance is also a very up-to-date website for viewing the most recent financial figures for free.
Learn Investing is our own portal that aims to help you develop your knowledge on investing.