As we bid goodbye to 2022 and say hello to 2023, day traders will be looking for trading opportunities to keep their online trading accounts ticking over. Short sharp share price movements are the key for day traders. Beta is the measure of volatility, and investor nervousness creates this phenomenon. It all sounds very easy, but what will 2023 hold?
Stock beta will give you an idea of volatility
The Internet is awash with data for online traders, which will highlight the volatility of particular shares and particular sectors against market indices. In basic terms, the beta of a stock is the historic volatility compared to a benchmark stock index:-
• A beta of one indicates the stock will move in line with the market
• A beta of less than one indicates a stock which is potentially less volatile than the market
• A beta greater than one indicates a stock which is more volatile than the market
In theory, the greater the beta the higher the level of volatilityexpected, and potentially more opportunities for day traders. In practice, those with a beta significantly higher than one can be very dangerous for day traders if their timing is wrong. It depends on your attitude to risk, especially in the relatively small timeline applicable to day traders.
Which sectors could be volatile in 2023?
Economic uncertainty as we enter 2023 will impact the volatility of global markets, sectors and stocks, all to a different extent. When you also take into account the tail end of the Covid pandemic, we could see huge swings over the next 12 months. Investor sentiment will also play a significantrole, with many still nervous about the uncertain future ahead. As a day trader, which sectors could be volatile in 2023?
Energy sector
Whether looking at natural gas, oil or green energy, there is a relatively high degree of uncertainty regarding commodity prices in the short to medium term. We then have political interference with fixed prices for oil contracts and potential supply difficulties with Russia at least temporarily out of the picture. This concoction of issues will likely create significant volatility and attract those looking at online trading. The short-term indicator for energy sector volatility will revolve around commodity prices such as gas and oil. Keep a close eye on these!
Travel sector
The Covid pandemic has decimated the travel sector, then, we have recessionary pressures impacting the global economy. In what is likely to be a case of survival of the fittest, there will be financial difficulties, trading surprises, but we may also see mergers and takeovers announced. This mix of the unexpected will impact investor sentiment and nervousness, a perfect blend for a day trader looking at online trading.
Historical volatility for the travel sector is perhaps at the opposite end of the spectrum to what we see today. Therefore, the travel sector, which exits the oncoming economic headwinds and (hopefully) the last of the Covid pandemic, will be very different to the one that entered this situation.
Technology sector
The technology sector is seen by many as the most volatile and unpredictable, often dominated by investor sentiment as opposed to profitability. Many technology start-ups today will not be profitable for many years, but they may have huge potential. Some shares can hit unexpected highs when investor sentiment is positive, finance is available, and short-term trading is visible without any fog/mist. On the flip side of the coin, when the financial rug is pulled away, trade is more difficult to forecast, and profitability is pushed further and further down the line, investor sentiment can turn very quickly.
In theory, a day trader looking at online trading would be attracted by the technology sector. There is the potential to trade on sentiment alone, which can create significant movements in the industry and individual shares. Timing will be crucial, and stop-loss limits should help avoid substantial losses, but discipline will be the key.
Annual sector performance
To put this into perspective, some of the standout UK stock market sector performances of 2022 are as follows:-
• Energy minerals +40.6%
• Distribution services +17.4%
• Non-energy minerals +6.2%
• Technology services -27.6%
• Consumer durables -20.7%
• Transportation -15.9%
As these are year-to-date figures, we can only imagine the additional volatility over the last 12 months. So is this a day trader’s dream or nightmare?
Conclusion
When comparing the last trading day of 2021 to the last trading day of 2022, the FTSE 100 is marginally up. However, this only tells part of the story, with a 52-week trading rangeof 6707.60 – 7687.30. So what does 2023 hold for experienced day traders and those looking at online trading for the first time?