Trading on stock price differences is actually a highly technical task, not as simple as it is often portrayed in popular media.
Otherwise, if everyone mastered the so-called high selling and low buying, and traded on differences for the long term, how would the main forces and market manipulators make money?
In reality, most retail investors who trade on price differences end up losing more and more.
It is much more difficult for retail investors to profit from fluctuations than from trends.
Especially when trading on differences of a single stock, there is also the risk of performance bombs, so one must be extra cautious when selecting stocks.
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Some relatively "smart" investors will choose to trade on ETFs for price differences, at least the risk is lower than that of trading on stock price differences.
After all, the risk of ETF bombs is slightly smaller.
Of course, risk and return are directly proportional, and the returns from trading on stock price differences are usually better than those from ETFs.
Investors need to choose the target for trading on price differences based on their own situation.Let's get one thing straight: not everyone is cut out for trading stocks to make a profit from the difference in prices, and there are a few types of people who are actually not well-suited for this kind of trading.
1. People with impatient personalities.
Investors with impatient personalities are not well-suited for making a profit from price differences.
This is because the price differences can sometimes come very quickly, within just a few days.
At other times, they can take a long time, requiring several months of a major cycle to make a profit from the price differences.
People with impatient personalities often lack patience and, when faced with market fluctuations, especially those that move in the opposite direction, they can't hold on.
Many will quickly go all-in, and in the end, instead of making a profit from the price difference, they are likely to end up losing money.2. People who chase gains and cut losses.
If you particularly enjoy chasing gains and cutting losses, it is not suitable for making the difference in stock prices.
Because chasing gains and cutting losses easily leads to constantly changing stocks, while making the difference is to focus on a single stock.
Chasing gains and cutting losses cannot be said to be a completely wrong investment method.
But the goal of chasing gains and cutting losses is to grasp the short-term trend to do the market.
This is completely different from relying on the long-term cycle to make the difference, and the style can be said to be completely opposite.
3. People who are fond of short-term trading.
If you are a short-term trader, it is recommended not to make the difference for a long time.
What T+0, that is not something ordinary retail investors can do.
Even professional traders also need a lot of training to feel the plate, and then they can make money in the short-term battle.Investors who engage in short-term trading are actually not suitable for making spreads.
They are better suited for quick trades after setting stop-loss and take-profit points, capturing short-term opportunities.
4. People with chaotic positions.
If you cannot effectively manage your positions, then don't make spreads.
The essence of spreads is to earn money from fluctuations by flexibly controlling positions.
If you cannot effectively manage positions and operate at full capacity at the slightest provocation, then wanting to make spreads is just a pipe dream.
At least 30-50% of flexible positions can be used for buying and selling, which is the foundation for making spreads.
3. The key to high selling and low buying of individual stocks actually lies in stock selection.Picking stocks that are continuously rising means that there is only selling at high prices and no buying at low prices.
Picking stocks that are continuously falling means that there is only buying at low prices and no selling at high prices.
Therefore, wanting to make a difference around a single stock for a long time is not easier than picking a stock that keeps rising all the way.
For stocks that have been fluctuating within a certain price range for a long time, the safety factor is high, and there are the following stock selection conditions.
1. Stable performance.
Stocks with stable performance are more comfortable to buy and sell at high and low prices.
At least, with stable performance, there is no risk of a sudden drop.
Of course, the stable performance here is best with a certain performance foundation.
Those listed companies with a net profit of only tens of millions of yuan seem to be stable at present, but once they fluctuate, they are likely to lose money directly.
If a listed company's performance is unstable, then say goodbye to the so-called price difference.Good performance indicates an upward trend, while poor performance naturally leads to a downward trend.
If you want to make a long-term profit from price differences, stable performance is the most basic condition.
2. Low price-to-earnings ratio.
Try not to choose stocks with high price-to-earnings ratios for making price differences.
The reason is simple: once these stocks enter a downward channel, they may fall significantly, with no room for price differences in the short term.
Stocks with low price-to-earnings ratios may not necessarily soar.
However, stocks with low price-to-earnings ratios definitely have a higher safety factor.
Stocks with a high margin of safety can be bought at low prices and held for the repair of valuation, which is also a way to make price differences.
The essence of stock speculation is the constant switching from low to high price-to-earnings ratios.
Laying out a low price-to-earnings ratio is definitely the right move.Of course, the price-to-earnings (P/E) ratio is dynamic and needs to be judged dynamically based on the changes in performance.
3. Stable price fluctuation range.
The so-called stable price fluctuation range refers to the stock price fluctuating within a certain range for many years.
It is difficult to make a difference in a one-sided market.
Of course, not all individual stocks will fluctuate back and forth within a range, there will always be shifts in the center of gravity.
It can be said that one can find the approximate range of price fluctuations based on performance.
By selling high and buying low within the range, one can realize the profits brought by the difference.
Reducing positions at high prices and increasing positions at low prices within the range is the most basic trading principle.
4. There should be some dividends.
Why it is best to have some dividends is actually quite simple.On the one hand, dividends can provide a certain return on cash flow.
On the other hand, companies with stable performance often have a certain ability to pay dividends.
Companies that have no dividend-paying ability are often not performing well, or their performance is highly volatile.
If a company has stable performance but is extremely stingy, it must have its own problems, and there may be a suspicion of financial fraud.
Dividends are actually an important condition for making the difference.
The key to high selling and low buying of ETFs lies in the control of positions.
ETFs are themselves indexes, and most indexes do not have the risk of blowing up.
The law of the index is not interval fluctuation, but cyclical fluctuation.ETF indices have both large and small cycles, and the methods of making price differences are not the same.
For small cycles, a grid system can be used, and conditional orders can be automatically placed.
However, making big money is definitely due to the fluctuations of large cycles, and the price differences of large cycles require strict control of positions.
1. Gradual position building during the downtrend cycle.
When making price differences with ETFs, it is more reasonable to build positions gradually.
Especially in a downtrend, try not to significantly increase positions all at once.
ETFs represent indices, and indices have cycles and trends.
In a downtrend, it is not easy to predict the bottom.
Reasonably control the position, it is better to buy less, rather than hastily raising the position too high, which carries a great risk.
2. Small position entry and exit during the consolidation cycle.Indices often experience small cycles of fluctuation, which are periods where the amplitude of the fluctuation is not significant.
In such cycles, making a difference in the price seems easy, but in fact, it is quite difficult.
Because the fluctuation of the index is much smaller compared to individual stocks, the position must be controlled within a small range.
Otherwise, once it officially starts, it is likely to lead to missing the opportunity or being deeply trapped.
The smaller the fluctuation, the smaller the position control should be, and earning a little money is sufficient, the first task is to get through the fluctuation cycle.
3. Reduce the difference in the rising cycle.
If the traded index ETF is in a rising cycle, then reduce the difference as much as possible.
The reason is also very simple. In the rising trend, making a difference actually earns less.
Others take 1 million, directly looking up, you take 500,000 to look up, 500,000 to make a difference, the total capital volume is small, and naturally, the earnings are less.
In the rising cycle, reduce the difference, increase the position a bit, and you can really make money.Especially during the large cycle of rising, or to say, the rapid rise in a certain stage, it is essential to hold on firmly during the process of rising.
4. Reduce positions when entering the high valuation range.
If the index enters a high valuation range, it is also necessary to reduce the frequency of arbitrage and reduce positions at the same time.
Do not be obsessed with the arbitrage opportunities at high levels, as it is easy to be trapped if not careful.
At this time, reasonable control of positions is the top priority.
Adding positions in low valuation and reducing positions in high valuation is the simplest way to do arbitrage or cycle fluctuations for ETFs.
Indices are different from individual stocks, and the driving force of performance is not as strong.
Once entering a high valuation area, it will inevitably increase the risk of falling.
It can be said that mean reversion may not be applicable to individual stocks, but it must be applicable to the entire index.
When investing in indices, do not be too greedy, and resolutely leave when it's time to leave, without lingering on the present.The vast majority of spreads are accompanied by certain time cycles.
They cannot last long, nor can they earn the money from spreads in the long term.
Because the shorter the cycle, the smaller the advantage of retail investors.
So many quantitative funds, so many powerful model formulas, are all engaged in ultra-short-term trading, leaving very little room for survival for retail investors.
Retail investors must have a relatively longer capital cycle to have room for survival when making spreads.
Those who always hope to earn about 1% of the spread every day to buy groceries, in fact, it is really difficult to operate.
Unilateral rises and falls will make the heart of making spreads become a dream and illusion.The difference in price does not necessarily yield results through hard work. Sometimes, the harder one tries, the more difficult the situation becomes.
Engaging in price arbitrage is not an easy task, hence, ordinary retail investors should not have overly high expectations when it comes to price arbitrage.
However, if you can calm down and make time your companion, price arbitrage will not be too difficult.
Whether it's some stable performance stocks or index ETFs, there are methods to realize stable profits through price arbitrage.