As an online trader, are you getting hung up on this week’s interest-rate movements and central bank decisions?
To help cut through the digital noise, I have put together my 5 step process below that I use in this current environment, based on the 5 phases of project management, known as IPEMCC (Initiate, Plan, Execute, Monitor & Control, Close).
This 5 step process is based on my recent book, Leadership & Management: 5 Steps to Increase Productivity! (2023 Edition).
1. Initiating
Much like when initiating a new project, when initiating your trading strategy in the current environment you are asking high-level questions first.
These include: what equities benefit most from high interest rate environments? what types of investments are trading at well below their moving averages due to the spike in interest rates?
For example, large banks make a significant portion of their revenue from interest income, so you could look into the most recent quarterly results from these banks and see if their stock is something you want to take a position in.
In addition, bond prices typically move opposite of interest rates, so mutual funds that invest in fixed-income assets like bonds also may be trading at significant discounts from a few years ago. Their three year price chart , for example, will show you their recent price trend and how it responded to periods of rising interest rates.
At a high-level overview, when initiating your strategy in this environment, ask yourself are you looking to buy a position relatively cheap and hold it until it appreciates, or is dividend-income your main goal, or both.
Some online traders may decide that 2023 is finally the time to get into positions that benefit from this type of environment where central banks like the Fed and ECB have been raising rates to curtail ballooning inflation.
In other words, the sky is not always falling!
2. Planning
When moving to the planning phase, you are taking high-level investing goals and breaking them down into manageable work units, like in a project.
If your high-level goal was to take a position in a bond fund, perhaps you could create a watchlist of a few bond funds and what assets they hold. Are they holding AAA-rated US Treasuries, corporate bonds, foreign government bonds, municipal bonds, or a combination of these?
Risk planning is a major part of planning, so your risk planning may determine that you only want to take positions in top investment-grade fixed income assets.
Bonds from some countries are considered much riskier that others, due to their increased likelihood of not being able to pay the interest obligation on those bonds.
3. Executing
You can do all the planning in the world, but at some point you have to click the button and execute a trade.
Those of us from the information technology generation are already used to quick & simple trade execution through our online brokerage, and even via our mobile apps.
However, before you click that buy or sell button, be sure to take note of any fees & commissions charged, and also the timing of your trade. Sometimes, patience can get you a better price, and despite all this technology at your fingertips trading is still ultimately a human decision if you are a home-based online trader.
4. Monitoring & Controlling
Many of us who are both techies and part-time online traders love analyzing charts, spreadsheets, and performance of our positions.. as well as the income those positions generate.
Make a habit of bookmarking key charts you have saved, that tell the data story you want told, and cut out the junk of no value to your decision making.
There are handy data visualization tools, some of which are free, such as Microsoft (NASDAQ:) Power BI free desktop version, where you can create a visualization dashboard showing your portfolio performance data.
Monitoring your portfolio, rather than just letting it gather dust, is a key part of you being an active & self-managing investor guided by data-driven decisions.
5. Closing
Since you have entered an equity position, you should establish when you are looking to close that position, roughly. Is your timeframe a month, a year, or longer? Are you looking to just buy & hold, and leave to posterity?
This could also have tax implications as well, so be sure to consider the tax impact on selling that equity at a capital gain or loss.
Much like in managing projects, after you close out your position, have a lessons learned session to go over what you could have done more productively during this investing cycle.
At the end of the day, the constant media noise about Fed decisions, inflation, and rising interest rates are not a time to panic or fret.. but a time for you to put together a structured, systematic approach to your investing goals, based on fundamentals and not throwing darts at a board on the wall or heeding “financial advice” from a chat forum.
Experienced investors don’t trade memes, they trade on fundamentals.
Their systematic approach also accounts for headwinds that the current environment can create, since you cannot for certainty predict well in advance what a central bank decision will be in a year, yet it can impact your strategy.
This 5-step process I outlined could make you a more productive leader & manager of your own portfolio.
