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How to cut through the noise and make solid investments backed by data

Today’s financial markets are more accessible to personal investors than ever before thanks to online brokerages lowering the barriers to entry and offering inexpensive or sometimes non-existent trading fees. As a result, personally managed investing has been on the rise over the last decade. In 2020, the number of individual investors surged to account for approximately 19.5% of trading volume in U.S. equities markets after hovering around 15% since 2014, according to Bloomberg Intelligence.

Taking personal investments into one’s own hands allows individuals to avoid expensive actively managed portfolio fees that eat into gains. Even more importantly, best-in-class technology that used to be available only to Wall Street traders is now accessible to individual inventors today, too. Using professional-grade software to make trades—whether for stocks, futures or cryptocurrencies (crypto)—ensures that all investment decisions are backed by relevant data.

Despite having data and technology to aid in sound decision-making, individual investors are not shielded from continuous waves of subjectivity—such as through the news cycle, opinion pieces and social media—and their own preconceived ideas that may impact trade and investment decisions. This is particularly true for crypto, which is often viewed as more volatile than other investment vehicles. The combination of bias and panic reporting on crypto can be difficult for some to ignore. That’s why seasoned investors use a mix of tactics to avoid making impulsive, reactive decisions.

Educate yourself

Fear often comes from not fully understanding a situation. A swaying boat doesn’t mean it will capsize; just as standard airplane turbulence isn’t an indicator for the pilot to scream “Mayday!” Likewise, it’s important to educate yourself about how the market works and what the key indicators are based on investment type.

For example, individual investors should learn how to read financial-asset patterns like “cup and handle.” Briefly, this chart pattern resembles a mug with a handle, hence the name, and begins when a stock price trends upward. Selling pressure will cause it to trade down, and then it will stabilize before rallying back up in a U or V shape. A consolidation period forms the handle and is followed by a breakout.

If a stock or crypto trader isn’t familiar with this bullish pattern and when to buy or sell, then they will probably view the chart line’s peak-dip-rise movement as extreme volatility. Fear, caused by a lack of information, may drive their decisions and could result in losses or substantial missed gains.

Knowledge is power. Educate yourself to avoid making reactive, ill-informed decisions.

Set investment rules

Given the volatility of the financial markets, every investment incurs some amount of risk. Consequently, investors should not use funds that exceed the amount they are willing to lose or not have immediate access to. The concept is similar to placing a bet. While it is pessimistic to imagine losing every cent, it is important to be ok with that outcome should it occur. By setting rules and sticking to them, investors can mitigate losses and secure gains.

Before investing a penny, develop clear buy and sell rules that align with your goals. This could include clear criteria for when to buy based on a chart pattern, when to sell so as to exit with guaranteed gains and when not to sell to ensure that paper losses don’t turn into actual, or realized, losses.

Make data-driven decisions

The best way not to be influenced by the news, social media or others’ opinions is to use data—such as charts, indicators, performance statistics and predictive values—to guide every investment decision. Serious investors will also opt for professional-grade tools like VantagePoint Software, which uses AI to extrapolate real-world data to make a range of performance predictions with a high level of accuracy.

This tech-enabled approach allows individual investors to move away from lagging indicators that rely solely on past data and instead use leading indicators that provide greater insight into market dynamics and impending trend changes.

An example of a lagging indicator is a traditional six-day moving average of closing prices. This calculation adds the past six days of actual closing prices and divides the sum by six. The result is based solely on past data, which any asset chart will show is not necessarily indicative of future performance.

VantagePoint’s forecasting software trounces lagging indicators with predictive technology by crunching millions of data points daily and providing AI-predicted data, one to three days ahead of the markets. This minimizes the lag effect and identifies trends earlier to give traders a two-day jump on the market.

VantagePoint also performs and reports on its patented intermarket analysis, revealing hidden patterns and connections between assets that are invisible to most traders.

Focusing on intermarket data and predictive indicators helps investors ignore the subjective noise around them and make educated, confident decisions. Join VantagePoint’s next live training to learn more about predictive analytics software and how to use the data to improve your trading outcomes.

Save a spot at Vantagepoint’s next free live trading class here!

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