Monday, September 26

CMC manager Jochen Stanzl: “Snail wins in trading”

by Emmeran Eder, Euro am Sonntag

NJochen Stanzl comes to the interview a little bit weakened. The trading expert recently got his booster vaccination. Now he is turning back to his favorite topic, the financial markets. His employer, CMC Markets, gained many investors as new customers during the pandemic, who began trading Contracts for Difference (CFDs) in 2020 and 2021.

Euro on Sunday: Mr. Stanzl, why have many investors opened accounts with CFD brokers since the beginning of the pandemic?

Jochen Stanzl: They had more time in the home office and other leisure activities were severely limited. In a representative survey, more than 40 percent of new customers said they wanted to learn a new skill and understand how markets work.

Did it work out?

Only in part. Many have been chasing trends such as hydrogen, e-mobility or crypto currencies. Always looking for the next big thing. For example, the Norwegian hydrogen share NEL ASA was more sought after than the DAX in the spring.

With success?

Not often. Many only saw the opportunities, but not the risks. Instead of structuring their portfolio sensibly, they have built up cluster risks such as hydrogen and e-mobility, two sectors that are highly dependent.

How can investors do better?

By spreading investors across different sectors that have little or nothing to do with one another, for example chemicals, car manufacturers, cloud computing or gold. If cloud falls, gold may rise. It’s like in golf: It’s not the next tee that counts, but the handicap that counts in the end.

Was that the only mistake investors made? Is that enough to trade successfully?

No. That’s just one building block. New investors are often easily influenced by the media or acquaintances instead of following their own plan. If the neighbor buys bitcoins, so do they. In doing so, they are guided by the fear of missing out on something. Often they then buy too high and make losses. It is better to wait. New opportunities will open up again. Waiting and sitting are often better strategies.

But how is someone supposed to know when a price is too high?

That is difficult, of course. But if everyone is talking about a topic or if it is the focus of the media, I advise caution. The majority are often wrong about the stock market. Most of the time, the subject is already through and the greatest profits have already been made.

Not always. Tesla rises and rises. Many who didn’t get on board because they thought the stock was already too expensive are annoyed.

Tesla had also fallen almost 40 percent from the high in the summer. In such cases, I recommend buying an investor who has itchy fingers, but who doesn’t dare to stick one toe in the hot water. That means that if he actually wants to buy for 10,000 euros, he should only use 1,000 euros. He already sees part of the future in the following price development, but does not take all of the risk. If things are going well, he can continue to increase slowly. The snail wins in trading, not the cheetah. If things go wrong, the loss is only minor.

What do you think of buying more?

A lot if done right. I recommend what is known as pyramidization. For example, if an investor buys a share for ten euros and this climbs to 13 euros, he can set a guaranteed stop at 11.50 euros on our platform. In any case, he has a profit of 1.50 euros. Of these 1.50 euros, he also invests 0.75 cents, or half, in the share, thereby increasing his position. This increases his chances of winning and consistently focuses on winners.

What about repurchasing if a stock does not rise after purchase but falls?

This is called cheaper. I do not agree with this. The investor has no profit to reinvest. Increasing the position increases the risk and, in the worst case, he has to realize high losses.

How should investors then deal with losses?

You should think of a stop course from the outset in order to limit the losses. Many investors find it difficult to get rid of positions because they have to admit a mistake. So they deny their wrong decision. That is human, but often leads to the fact that they only sell a share out of desperation with high losses. However, it takes many winning trades to make up for a large loss.

So feelings should be largely eliminated?

Investors tend to euphorically buy at the high point and sell at the low point. The opposite is often the right thing to do. This can be illustrated with a graphic (see below). This shows the ups and downs that an investor who is guided by psychology goes through. A trading plan, stop rates and strict implementation of your own rules help protect yourself from your own emotions.

What other loss management options are there?

The be-all and end-all are the position parameters. By reducing them, investors should try not to become too attached to a price trend. Anyone who leverages or builds positions that are too large will be inclined to want to review a course at any time of the day. On the other hand, if you put together a portfolio with many individual components and clearly defined risk, you will spread your risk and sleep more peacefully. So he is less psychologically bound.

Which trading strategy do you recommend: chart technique, fundamental analysis or sentiment?

You can mix them up, but you can also concentrate on just one. Everyone has to find out for themselves what suits them. Any of these strategies can be used by traders to be successful. In the end, it should be fun. Anyone who has decided on a style should then familiarize themselves deeply with specialist literature and webinars. This is especially true for inexperienced CFD traders.

What else can you do?

Almost all CFD brokers offer demo accounts. These are advisable as investors can use them to approach CFDs in a playful way.

Then can you start playing?

I defend myself against the idea that CFD brokers are gambling halls. In the last 1.5 years we have certainly had some new customers, especially young ones, who wanted to get rich quickly. Not many of them are left.

But you don’t mean to say that CFDs are for buy-and-hold investors?

The holding costs are certainly too expensive for long-term investors. But an investor can put together a core portfolio well with CFDs on ETFs, which have no holding costs at CMC Markets. The advantage is the convenience, since the investor does not need several accounts, but has everything on one platform. In addition, portfolio hedging, for example going short the S&P 500 or DAX, is feasible. In addition, a portfolio with CFDs can be expanded to include commodities and currencies, for which other products are often difficult to find. Otherwise, CFDs are more suitable for short-term investors, as they can be used to play trends and act internationally quickly.

And what about the high levers?

Sure, CFDs have leverage that can amplify gains and losses alike. But these can be easily controlled via the position size so that they remain within the framework for the entire portfolio. But as I said, CFDs are not widow’s or orphan’s papers.

What trends do you expect in the CFD market in 2022?

Many of the investors who have added in the past two years will stay. However, they are more likely to buy value stocks, I expect a sector rotation. In addition, short positions are likely to play a greater role again as a hedge or as a strategy for overvalued stocks.


Profound knowledge of the markets

Jochen Stanzl has been chief market analyst at the CFD broker CMC Markets in Frankfurt for six years. The professional focus of the 39-year-old is on the combination of technical and fundamental analysis of currencies, commodities, bonds and the global equity markets.

Emotional world: The graph shows the emotional highs and lows an investor goes through before, during and after a stock purchase


Image sources: CMC Markets, Finanz Verlag