The disrupted international political environment calls for a new approach to trading to take advantage of "the new normal". So here are trading strategies that retail investors may want to consider to sharpen their online trading in 2017.
Greg McKenna is the chief market strategist at AxiTrader. He says one idea is to take advantage of what he calls "Manic Mondays". This is an opportunity to take a contrarian view to trading, or a least buy on bad news that may have come out over the weekend, prompting stock values to tumble lower.
Often this behaviour is an overreaction and prices will come back over the week, giving traders a good chance to profit.
"On a Monday, Asian and Australian trading is a great opportunity to take the opposite view from the investing universe after the weekend news," he says. "If the world is ending, then buy. If it's a celebration, time to sell."
Similarly, Stephen Innes, senior currency trader at OANDA Australia and Asia Pacific, says at the moment the simplest non-algorithmic, news-driven strategy is to trade based on US President Donald Trump's tweets.
"Algorithmic traders don't open and close positions based on Trump's tweets as [the tweets] are way too sporadic to serve as an important trading strategy," he says.
Proposed infrastructure program
This is an opportunity for retail investors to take a view of the market based on Trump's use of the social media platform. For instance, should he make future announcements about his proposed infrastructure program, this can produce a boost for toll road companies' share prices. This can also be an opportunity for mums and dads to trade.
Chief executive of Bell Direct Arnie Selvarajah says clients are wanting greater insights into corporate activity. They are increasingly using its Directors Trading Insights tool, which highlights announcements about directors and senior management selling or buying stock in their company.
"People are growing more sophisticated, such as keeping a close eye on directors trading in their companies," Selvarajah says. "That information was there before but it is being used much more regularly and in a more insightful manner. It's one of of a number of trading tools that our clients are using more frequently."
Selvarajah also notes that clients are looking for better returns than those offered on cash deposits. 'It makes sense then, for our clients to explore the fixed income sector, including exchange traded bonds,'' he says.
Ric Spooner, chief market analyst at CMC Markets Australia, says the long strangle is one technical strategy retail investors can consider that is also designed for the Trump era.
"This works if there's a big pick up in volatility and option prices rise," Spooner says. "In a long strangle, you buy a call option at a higher strike price and a put option at a lower strike price. Traders win if markets go haywire, but they lose if volatility stays low or gets lower. It's a way of capturing any unexpected lift in volatility that may come with the new administration." The maximum loss is limited to the premium paid.
Investment and risk component
The spread between the price of copper and gold is another Trump-related strategy Spooner says retail investors can consider exploring.
"Both are influenced by the US dollar and interest rates, but copper is an industrial metal, whereas gold has a big investment and risk component to its price. After the US election, we saw a really big increase in the copper price based on expectations of increased infrastructure spending. It well and truly outperformed gold.
"But recently gold has started to hold its own and there has been trading around this, with those in the market testing the extremes of the range and expressing their view on the Trump presidency through this position."
However, he says when the price of copper rises, as it has recently, the reverse strategy is an alternative; that is, buy gold and sell copper. Traders should also look into this pair if they have a view on the direction of metal prices in the current market.
Back home, Spooner says using contracts for difference (CFDs) to express a view about the major banks is another option retail investors can consider.
"One of the features of our market over the past year or so is that our big four banks have become even more homogeneous than they were," Spooner says.
"So all four major banks are now quite similar domestic financial institutions. But short-term traders will be aware you'll often see changes in the share price of just one of the four major banks. This can often be due to overseas traders or institutions pushing the price of one bank stock up, and pushing down the price of another as they sell one and buy the other."
So for short-term traders, using CFDs to buy one bank stock and sell another bank stock simultaneously can be a way of taking advantage of short-term changes in their share prices.
The crack spread is Spooner's final strategy traders can consider to take advantage of unusual markets.
"This is actually an old, tried-and-true trading technique," he says. "It tends to be used by professional oil traders. But retail traders who are very familiar with trading oil products do use it, too."
The crack spread allows investors to trade the difference between the price of oil and the price of its more refined products.
"There's often quite a substantial difference in the price of these instruments, with the price of individual oil-related CFDs often varying quite substantially according to which product has the biggest inventory at the time," Spooner says.
"You do see prices change across the week as refiners stock up in distillate or use more oil. The general theoretical spread is that every three barrels of oil creates two barrels of heating oil and one barrel of distillate fuel. People look to use that ratio and the price of the valuation ratios to either buy oil and sell the other two products, or vice versa."
