CHAPTER 1

The Next Decade

There is no doubt that anyone who has completely mastered the art of trading successfully in a hostile and ruthless global environment, will dispute that trading is anything but simple.

I have no intention to refute such statements. Except that novice traders have to start somewhere. So here is my basic starting point, from which layers of knowledge can be assimilated.

The following is the first step to acquire a deeper knowledge about your future trading strategies.

Environmental Factors

While the following factors are critical to understand and take cognizance of, these are merely some of the vast array of variables that need to be taken into account as a trader.

Variables Affecting Stock Markets

Since the early 1990s, the phenomena of markets becoming global has increasingly meant that whatever your ideology may be, whether Marxism, Buddhism, socialism, Catholic, Protestant, or capitalist, traders must get to grips with how the most dominant worldwide environmental forces operate and thus influence stock markets and ultimately share prices.

Free markets are dominating how products move across borders, how countries are integrating their national economies and even where people live. Yet, political and economic theories have largely become blurred, with the power of China operating in the free market arena, but calling itself socialist.

Therefore, the success of liberal or socialistic economic programs depends on how these are positioned to take advantage of resources locally and globally. Since the 1990s, I have followed various experts on the role of global markets and their impact on stock market trends. These trends are so powerful and intense that I concluded that a major study had to be conducted, which started out as a Masters in Economics and quickly extended into a focus for my economic doctorate. The following is a basic overview of expected changes over the next decade in stockbroking.

A Basic Overview

Eurozone and Its Aging Population

Once the Eurozone’s single market in goods and services is complete, these countries have the power to start specializing in their expert products, creating entire countries with specialist skills. Until the amalgamation takes place, gaps are increasing in the service sector, where potential economic growth is greatest, which provides strong trading opportunities for the global trader.

Europe is experiencing declining birth rates.

A declining population means less people to fill positions, which creates large demand gaps. If some European countries—such as Germany and Italy—continue to act as a cause for declining European economic growth, competitors will start to eye potential takeovers, which will create major trading opportunities.

Mergers tend to provide global traders with Pairs Trading opportunities.

Bulls and Growth Sectors

Global markets have experienced an unbelievable 7-year bull run, with the United States’ Dow Jones rising by 95 percent, the FT-100 by 45 percent, and the Nikkei by 70 percent.

However, these bulls have created their own structural problems around the world, with supply of services starting to outweigh demand, resulting in potential corrections along the way—offering traders the perfect opportunity to undertake value analysis on markets, indices, and shares.

Technology is without doubt expected to be at the number one growth sector in the near future, as digital, biological, and industrial technologies converge. This presents massive opportunities for traders, as online trading becomes more acceptable and accessible to the masses of populations around the world, especially in emerging markets.

In addition, health care and a strain on current energy sectors should lead to viable energy alternatives being developed and promoted. These forecast leading growth areas are likely to experience major innovations that will act as key drivers for economic growth in the coming years.

The U.S. Dollar and Interest Rates

While the fight to diminish the importance of the U.S. dollar continues by numerous world nations, the currency should continue to remain the world’s main currency reserve for at least the next 5 years, especially as the Japanese economy continues to fight deflationary conditions and the Eurozone combats its own debt-related issues.

Interestingly, the U.S. dollar is likely to gain ground during this period, especially against the yen and euro, but will comparatively weaken against emerging market currencies, offering Forex traders opportunities to diversify their portfolios.

The reverse in current trends should take place. First-world markets will see interest rates rise, while emerging markets are expected to get a grip and better management of their interest rates. As a consequence, numerous analysts are forecasting a shift of funds and trading from emerging markets to those of first world. The theory is that money around the world chases lower risk.

The theory is simple. Money chases higher interest rates. This may be true, but this tends to be from those with low risk appetite. Those traders looking for higher growth will continue to look at emerging markets and their growth opportunities.

This shift of money around the world creates gaps in the market and thus trading opportunities for the astute trader.

Political Interference

While free market trade has been on the rise since the breakup of communism in Russia and trade liberalization in China, the credit crises in 2007-2008 has given rise to another less free market trend—protectionist trade policies.

Under the current U.S. President Donald Trump, there has already been new protectionist policies propagated. Other countries are also looking to protect their industries in a difficult growth environment.

As economies struggle to deal with low GDP and the resultant higher unemployment rate, politicians are looking at implementing various new barriers to entry. These will cause gaps in exchanges around the world, providing fantastic trading opportunities.

Third-World Markets

Market forecasts are that domestic demand for goods and services within such markets, rather than exports, will become a driving force of growth.

According to a PricewaterhouseCoopers analysis, the largest seven emerging economies (China, India, Brazil, Russia, Mexico, Indonesia, and Turkey) will be close to 50 percent larger than the current G7 (United States, Japan, Germany, United Kingdom, France, Italy, and Canada) by 2050.

Conclusions:

Global Indices

Within the next decade, the importance of emerging markets as a percentage of global market growth will become significantly more important; in some instances moving exchange directions.

Note: MSCI All Country Index

China: The Dragon Is Here

China’s staggering economic growth and regional and world political importance is a powerful trend that is, indeed, affecting the world’s economic and stock exchange growth. China is the world leader in vehicle sales, steel production, and—more critical to political influence, the largest acquirer of U.S. Treasury notes and also the largest holder of foreign currency reserves.

Even more impressive, this new China is young and at the initial stages of massive industrialization, technological advancement, and computerization, with a wide array of available natural resources.

And where it doesn’t have raw materials, it is acquiring these in rapid and staggering amount. For instance, where China needs coal, it is not merely buying coal from Africa, it buys the entire coal mine. For traders, these acquisitions provide major market gaps in share prices and thus advantages for traders.

Using Environmental Variables to Trade

How does the above help private investors to better their trading skills?

Here is what you need to know:

Three events are pertinent to these factors:

These started to make me think:

From such simple questions, these two volumes were born; the above influencing events will become clearer as you read these volumes. In fact, its composition comes from the mere fact that the raw material gathered from workshops during these past 5 years stemmed from many questions asked by intelligent men and women anxious to broaden their knowledge of trading and, eventually, investment as a whole.

Ultimately, if raising trading awareness assists to create successful and more sophisticated online traders, then increased volumes of trade should result in more Initial Public Offers (IPOs) and thus improve economic and political environments, as these new companies start to pay taxes and raise capital for improved and increased product and services. That, in turn, promotes a climate in which companies can prosper; bringing benefits to a wider scale than many people suspect.

These volumes thus build upon the knowledge gained from working with novice traders and professional stockbrokers since I started my career in stockbroking in 1990. Through them, I have gained a deeper and more pertinent understanding of the role of sentiment in markets and, as such, my analysis has become more succinct and accurate.

The purpose of these volumes is to give beginners and more experienced traders a fresh look at the principles and applications of using charting signals in conjunction with fundamental analysis. These methods are important, because when a trader applies them with precision, he provides him or her with a deeper understanding of the strength of his or her chosen investment or trade, taking into account market sentiment as well as current trends.

I hope that these volumes engender debate on how many steps it really takes to get from novice to experienced trader. Recently, I read an article that stated: “Only 140 steps to trading perfection!”

My first thought was that, by the time you get to Step 15, you will have lost the advantage of any profitable trade. If nothing else, I hope that the new trader will find an enhanced ability to detect and act upon changes in prices and to benefit from such action. The use of fundamental analysis provides you with better understanding of what you have to do before you buy shares, while technical analysis is used to determine interest in the share before you time such trades.

I have also noted from lengthy discussions with professional traders that only a handful of their clients are happy with their personal trading strategies. As one said: “Few traders are perfect, and most can certainly improve their performances,” adding, “the aim is to be more consistent in trading, before trying to make big profits.”

Chapter 2 is an introduction to novice traders searching for the perfect system.