Have you earned little or less than nothing on investments in the past year? The worst fear of any investor is not a bear market but a flat market.
As of now, 2022 has a bleak market outlook. Major stock indexes haven’t budged much in the past five years and are looking to stay put, and the conventional buy-and-hold strategies are no longer working like they used to.
Flat or sideways markets require a different approach. First, investors must increase their margins of safety and better assess value. Now is not the time for excess risk, a bull market can pay dividends, even when you make mistakes, but a flat market does not leave much wriggle room for error.
What is a Flat Market?
Understanding the market’s curves, troughs, and straights is essential for smart investing. For example, flat refers to when stocks and shares are neither rising nor declining in the securities market.
For example, a bond actively trading without interest is considered flat or sideways within fixed-income terms.
In Forex trading, flat currencies are commonly referred to as ‘being square’ whereby the condition of the money is neither long nor short.
The difference between Flat Bonds and Flat Stocks
When the stock market has made little or no movement, it is a flat market, whereas bonds are flat when they trade without accruing interest.
If stocks are flat, it does not necessarily mean that all traded securities are making no movements at all; it means that another may offset the price fluctuations in one market. In other words, when one market increases, a correlating demand may be decreasing, therefore flattening the market landscape.
Flat bonds are a result of the issuer rather than the bond itself. For example, bonds are flat when the issuer defaults and the interest accrued is not paid.
Also, if a bond is settled on the same date as the interest is paid, this bond can be considered flat. This is because no additional interest has accrued that exceeds that amount already paid.
How to trade in a Flat Stock Market
Just because the stock market forecast for 2022 is flat does not mean that there are no significant gains to be made.
Catching large movements in the market is more exciting and results in bigger payouts, but you can make just as much money seeing several more minor signs at the right time.
Instead of focusing on big market swings, look out for the more minor ripple effects. Most investments spend their time leveling out, and if you are a traditional stock trader, making a profit while the market is leveling is tricker but not impossible.
There are plenty of ways you can make a profit investing in 2022. With a bit of patience, diligence, and a few smart moves, you can still make your money work for you even while the market is barely doing anything.
Traditional stocks are not the only options available. While the stock market is still the core of any market venture, they are not the highest-returning investment mode during flat markets.
Investment trusts, international bonds, and even the emerging crypto market can return significant gains during quiet periods.
Quit market indexes
Even a long-term flat market has its peaks and troughs. Therefore, the following market indexes will not yield much return as flat markets only experience mini-bull and bears for weeks and occasionally months at a time.
You can, however, take advantage of even the slightest market movements. Instead of buying and holding onto stocks like you used to, increase your gains by investing after a market decline and selling shortly after you see some recovery.
Make your patience pay off
While a quick turnover is always ideal, the more temporary profits are harder to come by in a flat market. So instead, earmark some of your capital to long-term investments that you may follow for years, perhaps even decades. As the saying goes, Rome wasn’t built in a day, and neither is any good business. Rangebound stocks can test your true grit, but once you understand how money is made, you will have the nerve to keep calm and carry on. Long-term equities require patience and nurturing. If you treat long-term investment less like an income generation tool and more like a wealth creator, you will see far greater returns further down the road.
No time is better for this strategy than in a flat market.
Leave day trading to the professionals
Investment apps make trading a breeze for the novice. However, those inexperienced in market fluctuations quickly become bored during flat and sideways markets, which leads to risky over-trading.
Day trading requires deep knowledge and tactics, over-activity increases the risk of losses and higher transaction costs. If you don’t know what you are doing and do not have the necessary skills, you could pay a high price down the line.
Due to a lack of triggers, the frontline indices may not move much. During this time, it is essential to reevaluate your portfolio and not be tempted by the broad market. Revisiting your previous assumptions about your portfolio is best done when the market is flat. While it is impossible to obliterate risk, choosing non-correlating and diversifying asset classes can better protect the portfolio and increase profit outcomes.
Do not ignore Market Neutral opportunities
Sometimes market-neutral opportunities arise because of corporate actions. But, again, positional traders are best placed to take advantage of these by buying back stock or delisting. Dedicating some of your assets to market-neutral investment vehicles will protect your investment from market vagaries.
The current flat market will expect some trickling on frontline counters’ earnings. However, before you commit a large sum, make sure to keep an eye on results projections.
Keep hold of your cash
You do not always need to invest your hard-earned cash in stocks. Sometimes money is better preserved and stored as a liquid and liquid-plus reserve.
You never know when you may need a surplus of cash to prop up investments or invest in last-minute equities that result when the market corrects. Therefore keep your money by reinvesting in cash or currency, bonds, or even flipping high-interest savings accounts.
Test your strategies
If you are inexperienced in trading in a flat market, it is always best to test your strategies with small sums of cash first in case your investment crashes out.
Minute fluctuations in the market can make a big difference if you invest significantly. However, just because the market is not swinging up and down does not mean that you are not dicing with unpredictability.
You can test your techniques before investing real cash by using a simulator, or you can invest a smaller sum that will not break your bank if you lose it. Don’t be put down if your strategy does not pay off. Flat markets are challenging even for the most seasoned traders.
A flat market is the bane of every investor’s portfolio. However, the fear of making nothing or losing money in a balanced market is accurate, and investors need to pull out a few extra moves to make a profit during quiet periods. However, just because 2022 has a bleak outlook for the stock market does not mean that you cannot put your money to work and increase your profits over the next 12 months.
The key is to diversify your portfolio while sticking to stocks and bonds with a relatively reliable history. 2021 and even 2020 are still affecting 2022s yearly outcome, and looking back over past projections and revisiting your portfolio can help you sort out the wheat from the chaff.
Moving from relying solely on market indexes and taking advantage of short-term inclines and declines can pay off if you catch the market at the right time. However, do not be tempted to trade daily unless you know what you are doing. Day trading requires years of experience and insider knowledge to get right; you could potentially experience significant losses if you allow yourself to be tempted by a quick turnaround – especially during a flat market when projections are a little riskier.
Therefore leave day trading to the professionals and hire a firm to take care of the daily fluctuations. In the meantime, be selective of your markets and seek out long-term investments that have a better chance of paying off in months or years to come.
If In doubt, stick to tried and tested methods
Sometimes, it is better to stick with what you know when the market narrows. Exotic offers often tempt investors, and new products are showcased to look more attractive. This is an attempt to distract long-term investors away from traditional strategies.
While taking a risk on a new and innovative product can pay off big and an excellent opportunity to expand your portfolio, you may want to stick with established stocks with a more reliable history during flat periods.
The above information does not constitute any form of advice or recommendation by London Loves Business and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Appropriate independent advice should be obtained before making any such decision. London Loves Business bears no responsibility for any gains or losses.