Trading is a continuous process of self-refinement and improvement. It’s a journey that doesn’t stop at the closing bell but when you hang up your trading boots – but I’d be lying if I said real life doesn’t ever get in the way. The coming of a new year forces a pause and a look back at what has happened. It’s been a tough year for many both personally and professionally, although 2021 promises a brighter future. But decisions on trading and investments will always need to be made, and always need to be refined.
One mistake of mine this year has simply been trading too many names. At one point, I’m quite sure I had almost 50 positions, which is a grotesque amount. It’s not an amount I wish to entertain again. It’s impossible to have an overview of what positions are where and in what accounts, and at one point I was dreaming of buying and selling stocks and having to check if I’d actually bought and sold them in the morning.
That said, there are certain benefits to diversifying money. At no point was my account ever at serious risk, but upside was hindered by not trading enough in the strongest names and setups, and chasing too many stocks and missing easy setups. As I wrote in October, William Hill (WMH) was an excellent technical setup that I missed. It ended up with a beautiful trend that saw the stock receive a bid and would’ve resulted in a multi-R trade. I believe it’s far better to trade higher quality setups – the problem is there are always so many setups and you never know which ones will be the ones that can make a quarter until you see with the benefit of hindsight.
My goals for 2021 are to trade less but allocate more responsibility to positions. It’s true that a rising tide floats all boats and that cheap debt and unlimited spending is (at least in my opinion) going to fuel a mega 2021. But not all stocks are created equal. Drilling down on trends and quality is something I’ll spend more time on, and I’ll be allowing trends to play out longer. I’ll also be writing almost exclusively for Investors’ Chronicle, as well as my monthly subscription newsletter starting in January. This is free and you can sign up directly from my website (given below).
The coming of a new year also forces us to think of themes for the next twelve months. I can see green energy being a well-trodden path in 2021, and many London-listed green energy stocks have already been making moves in recent weeks. In December alone AFC Energy (AFC) has gained 200 per cent, and speculative hydrogen stock Powerhouse Energy (PHE) has also generated a punter frenzy, gaining similar amounts. I don’t think commodities should be written off either, and I see small cap stocks offering wonderful opportunities for those that find stocks that are at the potential beginning of their moves.One such stock is Bushveld Minerals (BMN). It was a big winner for me in 2018 and I wouldn’t be averse to it being another one in 2021.
In Chart 1, we can see where the bottom left arrow is that the volume began to amplify. This was accompanied by a strong breakout through the red line and a rally that saw the stock surge to 20p before taking a breather. Up trending stocks offer breakout opportunities, and Bushveld offered plenty of them.
It spent most of 2018 breaking out and consolidating, and tagged 50p in November. The stock then saw a large sell-off, shedding nearly two-fifths of its value to 34p. It then rallied again but failed to break the 50p high and again sold off, this time accompanied with heavier volume. If one hadn’t been stopped out in the previous large pullback, then this was a warning to get out or at least take some money from the table. It failed to come close to the high and instead drifted, eventually trending below the 200-day exponential moving average (pink line) and falling further.
It’s likely that there are punters still in Bushveld Minerals from 2018, hoping that the stock will rally again so they can cash out in relief. Holding onto losers is a typical amateur private investor trait (although hopefully not one of yours as a reader of this column!) and in Chart 2 we see how far the stock fell.
One of the standout features of Chart 2, which I’m sure you’ll notice immediately, is that the volume starts to increase and continue from March onwards. It’s a clear sign of accumulation as the stock made a classic stage 1 base. This was proof that buyers were now matching sellers of the stock and an indication of a possible change of trend. However, it would be another nine months before we saw a high impact breakout on big volume. I am long from 15p and intend on averaging up into this position if the stock makes another base.
If we are to see a boom in commodities, then Bushveld is a good opportunity to play a rising ferrovanadium price. Already we are seeing rises in iron ore and copper, and gold has done splendidly in 2020. However, for me the focus will be on the price action and the chart. My edge is not in macroeconomics and commodities but technical analysis. All the market’s opinions and actions are condensed into a simple set of indicators. These patterns repeat and, as long as they remain profitable, I’ll continue to trade them. Here’s to a healthy and happy, and prosperous 2021 for us all.
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