Trading techniques... what I learnt in 2021

A key theme of 2021 has been “meme” stocks. People on online forums piled into shares in order to squeeze institutional short sellers, causing the shares to rocket far beyond any rational value. In theory, this created shorting opportunities. But as I found out with GameStop, just because a share is overvalued doesn’t mean that it can’t go even higher.

Avoid Tesla

Elon Musk’s company has been a favourite of short sellers, due to the sky-high valuation and his eccentric behaviour. However, he’s made a career of defying the sceptics and seems to have created a company that has genuinely disrupted the car industry. With all of my short tips having ended badly, it’s time to throw in the towel and look for new plays.

Catalysts and valuation can be a great combination

As the past decade has shown, a cheap valuation is no guarantee that a share will do well. Still, if you can buy a share that is both cheap and likely to do well in the near future, then your chances of success are much improved, as my success with National Express and Morgan Sindall, both of which have benefited from bullish developments in their sectors and the overall market, has shown.

Stop-losses are important

Having to close a position because you’ve triggered a stop-loss on either the upside or the downside can be frustrating – especially if the price subsequently moves in your favour. But it can also protect you from an even more painful loss, especially if you are shorting a share, in which case your losses are theoretically unlimited. While my tip to short GameStop cost £1,000, if I hadn’t recommended that you automatically cover the position, you would have faced a loss of £5,800.