Every trade starts with an idea. It doesn’t have to be 100% original as it’s difficult to come up with something truly unique.
Every trade starts with an idea
It doesn’t have to be 100% original as it’s difficult to come up with something truly unique. And it’s probably best that it’s not. After all, for a trade to be profitable it’s important that other investors come to think the same way you do and get on board, so total originality could be something of a drawback. It has been said that truly bright and original thinkers don’t make the best traders as they’re often too early with an idea to profit from it. Nevertheless, there’s nothing like generating and developing your own ideas for building one’s self-confidence. This in turn should help you to come up with fresh ideas in the future and help turn you into a successful trader.
The "bottom up" approach
There is the “bottom-up” approach which can be thought of as looking at small, everyday stuff. This is a particularly useful starting point if you’re interested in trading CFDs on the stock price of individual companies. The “bottom-up” approach can be as basic as looking at the shops in your high street, seeing what’s opening and what’s closing, thinking about why this might be and how could it change in the future. Also, has your own behaviour as a consumer changed? Which shops to you go to most and why? Are you cutting down on your visits to the coffee shop, or are you spending more in there on cakes and sandwiches? What about your friends and family? These are all questions which can help you build an understanding of the retail sector and develop trading ideas.
Of course you’re more than likely to have your own area of expertise, either through work, studies or leisure time activities. Have a think about how things are changing and if so how are these changes affecting you? It may be that there new software products you’re using. Is it possible that these could revolutionise the way your business is done? How about blockchain, the technology behind Bitcoin? It could be that your business or profession will change because of it. If so, how can you take advantage of these changes? Which companies look set to profit from these developments? When you consider these issues try to think laterally. Don’t just follow one train of thought through to what appears to be its logical conclusion, but expand into other related areas. Then you can try to put this all together and look for trading opportunities.
The “top down” approach
You can also take a “top down” approach. This means looking at larger issues such as the future for transport or energy and then thinking which companies are best (or worst) placed to benefit. You may feel that self-driving cars could become the dominant form of transport in ten years’ time. What are the ramifications of this? Not just for car manufacturers, but for tech companies working on sophisticated sensors or satellites. It may be that satellites are replaced by new technology for instance. And if in the future we’ll be able to summon up a self-driving car through our smartphones, what does that say about the future of Uber, or car parks for that matter?
From here you’re just a few steps away from identifying companies that could benefit from future developments and those that will have to adapt or die. Suddenly you could have a clutch of potential trades that you could capitalise on through CFDs. If your ideas are solid, your technical analysis good and you get the timing right, it may not be too long before other investors catch on and momentum builds. In this way it’s possible to get in at the beginning of a profitable trend.
By developing your trading ideas in this way you’ll have your own reasons for doing the trade. This is much better than taking trading tips from third parties. After all, we can’t know what another person’s full trading plan is, or if they’ve even got one. This means that we have no idea what their tolerance to risk is, let alone how it may compare to ours. That may not matter if things are going well, but what do you do if this “sure-fire thing” starts to go wrong? Developing your own ideas helps to build self-confidence and gives you the tools to trade again and again. This will help you to be a successful trader.
Disclaimer: Spread Co is an execution only service provider. The material on this page is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by Spread Co Ltd or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. This material has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. As a marketing communication it is not subject to any prohibition on dealing ahead of the dissemination of investment research, although Spread Co operates a conflict of interest policy to prevent the risk of material damage to our clients.