If you’re considering investing on the Zimbabwe Stock Exchange or have already started your journey you may have come across talk of trading strategies. The trouble with finance and equities is that there is so much technical jargon a discussion can very quickly leave you feeling confused and wishing you had chosen an easier way to manage your money. But you’re here anyway. We’re going to look through some strategies that work for the particular circumstances that prevail on our exchange.
Investing versus trading
Now you may also find yourself embroiled in a discussion about investing versus trading when it comes to shares and I just want us to agree that there is no difference between the two. In both cases, you buy and sooner or later sell stocks which are effectively trading. Also, I advise you not to get caught up in false dichotomies that force you to choose one or the other strategy. You are free to use any mix of them that works for you.
We will start here because it may be one of the easiest to grasp for a beginner. Zimbabwe, unfortunately, has a notorious information asymmetry which simply means that people do not have equal access to information. This can be your advantage or your demise with this strategy. Remembering that all these stocks on the ZSE are businesses that are affected by information in the news. What you will find more prevalent in Zimbabwe is the effect of their own announcements. Thanks to the requirements of corporate governance placed on public listed companies they have to share quite a lot of information. Reports such as trading updates spur price movements in many counters. Your play here is to get the information as quickly as possible and act on it even quicker.
News trading comes from a school of thought known as fundamental analysis. This treats stocks as businesses and looks into their business tenets. Trend trading is from a school of thought known as technical analysis which looks at stocks as assets and studies their behaviour to identify movement signals. Contrary to popular belief technical analysis works very well on the Zimbabwe Stock Exchange. Trend trading seeks to identify prevailing trends in stock prices and capitalise on them. So whether the trend is a price increase you would like to take advantage of or a decrease you want to sell off before it works. Trend trading does take an awful lot of time compared to news trading and works better when you are focused on a counter and its trends than trying to pick trends on the entire exchange.
If news trading and trend trading are not exciting enough for you then scalping might just be what you’re looking for. Scalping is an aggressive strategy that looks to capitalise on small movements. You can benefit by selling just before a dip or buying just before a rise. While scalping can borrow from trend and news trading it is neither of the two and is simply about taking advantage of those movements. It is a more active strategy and involves more screen watching as it were. Also given the aforementioned information asymmetry which also prevails on the ZSE this is not a simple pursuit. Where scalpers in currency operate in 5-minute windows you may find yourself operating in 5-day windows. All that said scalping can be a very effective strategy.
You may have heard of the buy and hold strategy. Well buy and hold is not really a strategy but rather an expression of the position trading strategy. Position trading comes from the idea of taking a position, in this case with your wallet and backing it. Position trading is more often associated with long term investing but is just as applicable in the short term. You can think of it as riding waves. For example, if one could accurately predict when shares are going to surge it would be like switching from one surging share price to the next. This is really suited to the ZSE because we see most share price movements happen in surges and recessions. This leans more heavily on the school of thought of fundamental analysis.
As earlier mentioned you’re not required to stick to one, you can use them all or at least all the ones that you have the capacity to take advantage of.