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Is Now a Good Time to Invest in Stocks?

What does it take to capitalize on the current state of the world economy? And, how are experienced traders using their favorite tools to take advantage of what appears to be a continually rising price level across the board?

By
JJ Watt, Partner
4-minute read

Is Q4 of 2021 a wise or foolish time to get involved in the equities markets? A quick look at the major index charts can offer a pretty good answer to that question. You'd think that amid a global pandemic that refuses to go away, a new surge of inflation in most of the major world economies, and massive supply chain problems all over the globe, that investing in the securities markets might be a not so smart decision. However, objective data points in the opposite direction. One needs to just take a glance at the one-year or six-month charts of the most popular stock indices, like the FTSE, the DJIA, or the S&P 500.

All three are reliable barometers of what the past months have delivered to savvy investors who stuck it out and kept their assets invested in corporate shares. So, what does it take to capitalize on the current state of the world economy? And, how are experienced traders using their favorite tools to take advantage of what appears to be a continually rising price level across the board? Here are several of the pertinent facts that every new and experienced investor should remember as the fourth quarter of 2021 gets underway.

The state of the markets

With the exception of a rather large dip in prices from the beginning of September until the middle of October, the major indices have been on a general uptrend throughout the past 12 months. This is a significant point to digest because it indicates that institutions and big money investors were not scared off by COVID, rising inflation, or the ever-widening supply chain crisis. For profitable traders, having the right tools is the decisive factor that can turn a so-so trade into a winner. Plus, when you use platforms that have a variety of features, it's possible to take advantage of the current marketplace and its unique aspects. Here's more about how your trading tools can make a huge difference in your short-term and long-term success.

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Trading platforms get the job done

Anyone who uses the popular metatrader 4 platform has the advantage of creating trading systems, using desktop or handy mobile versions, gaining access to real-time prices in dozens of different markets, practicing on a demo version, and more. New and experienced trading enthusiasts who use MT4 often track about a half-dozen indices in addition to the Dow, S&P, and FTSE. That kind of data makes it easy to see that since the onset of the COVID pandemic in February of 2020, when worldwide markets took a massive hit, it didn't take long for things to get back to normal. In fact, by June of 2020, those major drops had been reversed, and all the key global markets were back to pre-COVID levels. Since then, they have continued to post gains for nearly 16 consecutive months.

Knowing how much to invest

For many newer investors, one of the main challenges is knowing exactly how much capital to devote to a given transaction. Suppose you decide that XYZ shares are set to rise by a significant amount. Should you go all in and make a huge investment? Fortunately, position calculators can save you the trouble of wading through a ton of math. All you need to do is input about six key data points and the calculator will show you the right size of the investment. The decision is based on your inputs, of course, which include your account size, risk parameters, and a few other simple factors.

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It's essential to keep in mind that position calculators will not do your work for you. It's still important to maintain smart money management principles, like keeping the percentage of capital investment on a single trade somewhere in the neighborhood of two or three percent. Otherwise, you risk blowing out your account after just a few losing trades. When you limit the amount of capital in this way, there's a much better chance that winners will outnumber losers, and you'll survive even the roughest of sessions.

Using your capital wisely

One question that every investor faces eventually is related to leverage. Some people are averse to ever putting more money on the line than they can afford to lose. These anti-leverage individuals are philosophically opposed to the entire concept of leveraged trading. But, in the real world, the huge majority of orders include leveraged money. Most brokers offer account holders the chance to use varying amounts of magnification on any position.

That way, if you only want to put $500 of your account at risk, you could still place an order for much more, provided your broker allows you to. The idea of leveraged buying comes down to whether you feel comfortable with the process and are fully aware that not only gains, but also losses will be magnified when you operate with funds that are not your own. It's wise to evaluate the risks and rewards before every position you take and then decide how to proceed.

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Knowing when to enter and exit

Using tools that can assist you with setting precise entry and exit points can significantly improve profit margins. Many brokerage firms offer trading signals to account holders, either for free or on a subscription basis. Using signals, most of which are developed by highly experienced traders, can offer direction for new investors. Keep in mind that you don't have to follow a signal just because you subscribe to a service or receive it for free in your in-box. Many people use signal services as general guidelines for which stocks are expected to rise and which sectors are experiencing problems.

For example, if you receive a free signal that says to enter ABC Corp at $45.66, exit at $49.00, SL: $45.00, limit: $48.50, you could follow those indications exactly, or simply view the information as a solid indicator that ABC has a high likelihood of increasing in price during the session. If you wanted to follow it exactly, you'd still have to decide on how much to invest, but after that, you would set a stop-loss at $45, buy in when the price reached $45.66, and set an automated exit (gain limit) at $48.50. Being successful in today's securities markets means using all the tools at your disposal.

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