Investing with a trend is a key notion to follow the market and capitalise on its gains without taking an excessive risk related to contrarian investing. By following trends investors engage in instruments with high trading volume in the direction of their movement. But trends relate also to classes of instruments which are on the rise or are supposed to begin a strong long term movement soon. Here we laid ground for trend investing in 2018.
How market trends work
Trends related to behaviour of particular instruments traded on exchanges stem from the macroeconomic trends, which are interconnected with currency exchange rates, the environment, politics and societies. Shifts and swings of macro trends almost always are stronger than any of the micro trends related to performance of individual instruments and their underlying assets.
W selected a series of investment trends lined up for 2018, some of which have featured in 2017 while others are predicted to rise to prominence in the coming year.
How can investors use trends to profit on their investments while mitigating risks? There are many approaches, from fundamental to technical analysis to put to work and a set of rules to adopt. First of all, never trade against the trend – the risk is too high. Secondly, do not engage in instruments with low trading liquidity, or sideways trend, or both. Thirdly, always use stop-loss orders to cut your losses when risks have materialised. And lastly, diversify your investments by hedging risk with reverse-correlated instruments or options.
Top trends for 2018
Bitcoin and other cryptocurrencies are a hot topic now – they seem to feature daily in the news programmes and online news websites. While there have been some problems in the last weeks of 2017, there is little doubt that the different types of Coins will continue to be a big part of the investment world in 2018. Short term investors love them for volatility, while long term investors for so far astronomical gains.
According to many cryptocurrency experts, the key in 2018 is not to focus on Bitcoin itself but to consider other, rising coins. Many believe that within the next 3-5 years, one or more of these lesser-known cryptocurrencies will in fact eclipse Bitcoin and that’s why investing in them now, while they are small can be a worthwhile consideration.
And let’s not write off Bitcoin itself yet either. One study spoke to over 500 Bitcoin investors and saw over three-quarters of them confident that their returns in 2018 would exceed their gains in 2017. Even as danger looms around the most well-known cryptocurrency, few doubt that it will weather the storm.
2. Technology stocks and start-ups
Technology remains one of the most popular areas for companies to invest in, both for short-term gains and for the long-term ones – so people follow them with investing in shares, even with a view of retirement. Trends play a big part in technology but are also a lot easier to predict as the development of new tech takes time. It means you can invest in growing areas or ones that are established and are going to continue to dominate the market.
When companies like Elon Musk’s Tesla devote time and resources to a trend, then you know there’s a good chance that it is going to be worth investing. Once autonomous cars are allowed on roads and deployed into mass production, there will be a significant sustainable demand from all kinds of transport companies, from wholesale trucks operators to courier services to taxis, to replace their human-operated fleets with autonomous vehicles.
Another trend that has become a reality some time ago, and is continuing to grow, is the development and commercialisation of electric vehicles. As awareness of the pollution problems caused by petrol and diesel vehicles rises, and pollution dominates towns and cities, electric cars are the solution. Hybrids are already well received, and almost all leading manufacturers are developing fully electric vehicles. It will fuel a number of sister industries, e.g. batteries and electric engines manufacturers, new kinds of car workshops, and software development companies.
AI (artificial intelligence)
As well as using AI in autonomous cars, we find increasingly more uses for AI. In the coming year tech investors will continue to put money into innovative AI stocks. Examples range from messenger bots used for social media marketing, through to smart home technologies and use in manufacturing.
Fintech is a matured trend and it faces an exciting year in 2018 with both positive and negative factors influencing it. Some experts predict that Blockchain will enter the mainstream and will be used by big banks – companies such as Barclays, HSBC and Credit Suisse are already investing in implementing it for their transactions. Digital only banking, the use of machine learning and automated personalisation using Big Data analytics, are just some of the trends generated Fintech that will influence how things will change during the year.
The negative side to consider are the continued problems with security, privacy, and trust. Fintech companies know that many people struggle with technology and prefer high street banks with their branches. The big stories about breaches and frauds make even more people cautious. Therefore, there is a great emphasis on ensuring these concerns are addressed for the positive trends to become a reality.
The ‘Internet of Things’ has quickly advanced from being the product of science fiction to a concrete reality featuring in many of our homes. It also makes an excellent opportunity for investment, although with some caution. Gadgets like the Amazon Echo have spawned many variations, but there is always the risk that none will be able to compete with the original.
The advice is similar with IoT as with many other tech investments – look for a leader that is outpacing the competition but still has solid financials, and then hold the stock for the long haul.
3. Crazy bull market
In the US, the bull market is now one of the longest-running in stock history. The positive economic trends, alongside the tech changes we have seen, allow many companies to deliver outstanding results but there is always the caution that the bull market will end, and things will take a downward turn.
The current bull market in global stocks means that investors have earned, in a year, more than the entire output of the US economy. Last February saw a string of eight all-time highs for the S&P 500 that meant a 35% gain. In monetary terms, this market run has created $18.5 trillion in a new value.
Spotting the end of a bull market can be tricky but also very important for investors in 2018. Experts say signs can include watching for overvalued large-cap mergers and acquisitions, as well as a rush of capital into riskier assets, can be signs of a problem. So, while making the most of the bull market is a good move for investors, there should always be caution that a bear market can be around the corner.
4. Strong rebound of Eurozone
While the European Commission has a somewhat gloomy outlook for the UK economy in 2018, the Eurozone is expecting ‘significantly better’ outlook into the new year. Helped by the world economy and stimulus from the European Central Bank, the Eurozone is likely to expand by 2.2% this year, up from the predicted 1.7% from just six months ago.
It means that anyone looking to invest in Eurozone countries can see potentially a healthy return over the course of the year. Investment is back to pre-crisis levels with corporate profits being robust and interest rates low. However one must take into account two related risks: currency risks as Eurozone still uses many currencies (e.g. except Euro there is Swiss Franc, British Pound, Danish Krone, Polish Zloty, Czech Koruna etc.), and sovereign risk related to Brexit and further tensions which may even find Hungary and Poland exiting the EU too.
5. Medical and healthcare stocks
This year has been good for medical stocks in areas such as diagnostics, devices, biopharma and HMOs. Fundamentals of the industry remain strong with industries around the world predicted to continue to grow. However a key factor with these stocks can be the legislation and clinical data that can impact different programs, while overarching themes such as an ageing population and the obesity epidemic, can also affect these stocks during the year. Experts believe the outlook is bright for the medical and healthcare stocks area and makes it is a stable area for all levels of investment.
Protecting your portfolio
There are indeed exciting and intriguing trends that could lead to investment opportunities around the globe in 2018. But there is still reliable advice to help you protect your portfolio and shield yourself from your actions. Hedging risks, emphasizing liquidity and gradually cashing out instruments is the base scenario for risk-averse investors. Those with smaller portfolios and risk appetite can let their profits grow, without forgetting to move up stop-loss orders. Finally, it’s always good to diversify a portfolio so that a sudden crash in one area doesn’t wipe out the capital entirely. The concept isn’t just eggs in different baskets but eggs in different baskets, being carried by different trucks. That means spreading your investments across various economies and asset classes for the best results.
There’s no doubt that it is an exciting time for investors. There are lots of new and trending investments to get involved with, and more ways to invest your money than ever before. But on top of that it’s always helpful to optimise trading costs and save on commission by switching to cheaper brokers or using social investment platforms. This leaves more capital to invest even in risky assets.