I recently had a career change and now work at a banking institution. This came with a few restrictions relating to what I can and cannot do in markets. The rules around trading individual stocks made it practically impossible for me to trade single stocks, which had been my bread and butter. However, I can trade ETFs without a problem.
Fortunately, my trading strategy and plan didn’t have to change much, other than where in the market I look for opportunities.
This was difficult at first but I learned something important about trading from this process – and that is the importance of robustness in a trading strategy and plan.
What a robust trading plan is really all about
Here’s what I figured out. My process of finding opportunities in the market is far more important than where I find the actual opportunities. The process is therefore disconnected from the instruments I trade.
My process involves chart analysis, and the things I look for in a stock’s chart are much more important than the stock itself. The name of the stock is completely irrelevant. I could load any random chart from anywhere in the world, and I will still look for the same things and trade the opportunities the exact same way. This means my weapon and ammo aren’t designed for a specific type of market or asset class, and I can use them everywhere I go. Sure, I might need to make small adjustments as environments or the things I trade change, but I don’t have to throw the entire playbook out the window.
Now you might think that yes, it makes sense if you only trade the price. What about when trading/investing in the company itself through the lens of fundamental analysis?
Well, the principle still applies. For example, when looking at a company’s financials or when you undertake a micro/macro analysis, the name of the company isn’t exactly relevant beyond just identification. What’s important are things you look for in a company. You can look through the financials of some random company from anywhere in the world without considering its name or where it’s listed.
Investigate your process
It’s possible that you might have a robust process that drives your decisions, but you might be unaware of its nature and think that it can only work for JSE-listed companies. It will therefore be useful to first determine if your process is/isn’t limited to what you can trade or invest in now. So that as we see more delistings from the JSE, for example, it doesn’t cause anxiety because you can take your weapon to another exchange or to a possible new market entrant.
Why is this important? Well, it frees you from being married to a particular instrument, whether it’s a forex pair, stock, crypto, etc. Because you can look for the same things in a different instrument and even in a different market.
Robustness in a trading strategy and plan means not being limited by anything. Not the exchange, not the stock, nothing. So if the instrument you’re married to ceases to exist (like what happened to me) you can still trade or invest.
Traders share a peculiar characteristic: they’re fiercely competitive, but only with themselves. In practice this means that they see every outcome as an opportunity to learn, and they’re brutally honest about both their failures and successes. This also means that they’re hungry for knowledge. They don’t sleep easy with unanswered questions. And they’re seldom satisfied with just one answer.
Njabulo Nsibande is a founder of Village Trader, and Sakha Ingcebo investment club. His interest in trading began in 2016, alongside a rash of Instagram ‘fx traders’…
Find him on Twitter: @njabulo_goje.