Reacting to a reactive market

Updated: Sep 13, 2020

The market has been extremely reactive to positive events recently. The market became increasingly reactive around January in response to transfer speculation which is to be expected. Around this time, there was an influx of new traders and huge capital appreciation gains were being made on the back of transfer speculation. This may have partly led to the cause of such huge rises as these set an example for what returns can be made on Football Index in such a short space of time.

The market appears to be more reactive to positive events than ever right now and rises are being fuelled by the fear of missing out. This can create fantastic opportunities to make quick profits on Football Index, but can equally lead to unwise decisions and risky trades being made.

Whilst some players boom, a large amount of player's prices are gradually declining and it appears the end of season sell off in PB contenders has begun sooner than expected.

Along with players who have risen due to transfer speculation, we have also seen massive rises in young players after strong performances since January too.

The price table (Right) is sorted by players who's Current Price / Average Price is highest. This can be a useful indicator to show which type of players have risen considerably recently. Out of this top 20 - only 2 players over the age of 24 have increased in price due to factors not relating to a transfer. These two players are Jordan Henderson and Danny Ings. Both have partly risen due to the speculation of potential media dividends from playing for England at EURO 2020.

The other 18 players have recently increased due a to a recent transfer / transfer speculation or are under 25 and have been in good form since January.

This table helps to show the extent to how reactive the market currently is and how the reaction to different players following positive performances differs so much depending on the player's characteristics.

*Since January, older players without transfer speculation, who have recently earned match day dividends have not risen so much following strong performances.

Bruno Fernandes has risen form £2.77 to over £8 in less than 60 days

3 Approaches to reacting to a reactive market

There are many ways to approach reacting to what has become an increasingly reactive market.

Weighing up which of the three options below you think is best to use will completely depend on your own personal circumstances as some can be much more time consuming than others.

Overall, it is best you just decide which way of reacting to the reactive market works best for you.

However you approach the market, the 'What not to do?' section below is certainly worth considering if you are unsure on this topic.

1. React before others

The first approach is the most obvious but, hardest to implement and should only be attempted by those who have the time in their life to make it work and are aware of the risks. *I personally avoid reacting to events often as it can be difficult to react quicker than others and can be very time-consuming.

Furthermore, you can often be left with a large spread and holding an unwanted player for longer than planned if you do not get the timing right.

However, if you are a very active trader and are able to react to positive events before others - the profits can be huge.

In order to profit from reacting to events:

  • Be very aware which players are likely to increase in price dramatically, following a positive event - based on the current market trend / current sentiment

  • Avoid buying players following a positive event if they do not suit the current market trend

  • Avoid buying after other traders have already reacted to the positive event (Before the price has already risen)

  • Sell the player following the rise

It can be very difficult to successfully implement this strategy and unless executed successfully - it is likely to result in losses.

Reactive rises can often be superficial and temporary so selling shortly after is often key to success when using this approach. This will help to ensure you avoid holding for what can often become a market correction / price drop.

This is because often reactive rises already reflect the market's anticipation for another future rise due to another strong performance / positive event occurring. As this prediction is already factored into the player's price, if the expected event does not happen - a price drop in the weeks that follow is likely.

Furthermore, past returns do not equal future returns. In some cases a positive event such as a strong performance from a young player may actually hinder their chance of future dividends wins.

For example, although Billy Gilmour was very impressive in the FA Cup game against Liverpool and went on to earn media dividends - he is arguably no more valuable now than he was before this game.

He may now have a better chance of starting for Chelsea in future games, but his PB score (Based on his statistics from this game) was not particularly high. As the media hype has hit what could be it's peak (Facing Liverpool in the FA Cup on BBC1) - his chance of future Media dividends may now be less than what it was a week ago as the hype cools off. Buying Gilmour earlier this week and selling for for a considerable profit would have been an excellent trade, but, holding much longer following this rise could be risky.

The more enthusiastic traders becomes about a player and the faster they rise in price irrespective of potential, future dividends returns - the riskier it becomes.

*The risk in holding a player after a reactive rise will depend on if the player has risen because of hype or because of a change in underlying value due to a change in circumstances.

Billy Gilmour has risen £1.22 and earned media dividends this week due to his strong FA Cup performance

2. Anticipate future reactive risers before the event takes place

This approach is very much based on speculating what could happen in the future. Players who have a strong performance or gain transfer links who suit the current market trend often increase considerably in price. Being aware of the current or an upcoming market trend can help you speculate which type of players, the market will react to the most following a strong performance. You can find more on how to profit from market trends here.

A reactive rise in a player with certain player characteristics can be a signal to buy players with similar player characteristics. Spotting such opportunities can be very profitable. For example, following Billy Gilmour's recent rise due to his strong FA Cup performance - many other young players who have played in the FA Cup this week rose huge amounts.

If this speculation leads to a price increase, again it is probably best to sell and realize this profit. The event being anticipated and which has led to the price rise may not take place and in which case the player will almost certainly drop in price.

Planning far in advance for huge rises due to a future event occurring can be profitable, especially if you speculate in advance of others. Over the next 3-6 months, it is likely we will see reactive risers to the following events:

  • EURO 2020 squads - young players unexpected to make the squad likely to rise

  • Stand out performers at EURO 2020 - young / low price / potential transfer players in particular (Including stand out Non-PB league players)

  • Strong performers in International youth sides over summer

  • Transfer Speculation

  • Pre-season friendly squads (Young players having a good game in pre-season leads to hype and price rises)

Rhian Brewster rose to a peak of £3.72 last pre-season

3. Stick to buying and holding value players

Short-term, this strategy may not be as profitable as successfully executing either of the above two approaches and the natural urge to resist following the crowd that appear to be making easy, huge profits can take enormous willpower.

However, it is a lot less time consuming, less risky and longer term can be very profitable.

The current market price should be less concern to a trader who has purchased a player as they represent what appears to be great value longer term.

The market works in cycles and so chasing the current cycle or market trend can lead to losses. Where-as being patient and waiting for a cycle or market trend to suit your portfolio can lead to great returns, as long as you realize the profit and do not hang on too long once the relevant players rise due to the relevant trend.

Unless you are very confident you will make more than enough profit using the above two approaches to cover the commission from selling, it is unwise to sell when players who you think are great value because they are dropping in price.

For a trader taking a longer term approach, price fluctuations provide you an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal.

Patience is key. Whilst getting on the right end of a market trend / reactive price rise can be extremely profitable, getting on the wrong end can be very unsettling.

Over time, players who have intrinsic value (Particularly young players) tend to increase in price. Therefore, holding these players until they do suit a market trend or rise in reaction to a strong performance and then selling when they become temporarily over-valued can be very profitable.

Conversely a drop in price in what appears to be a valuable longer term hold results in the player becoming even more valuable and so provides an opportunity to buy more.

When a player hits good form their price can spike to extreme heights, if this form is not sustained they often drop. It is important to consider if a player is dropping in price following a spike in price - as if they are, their price may not to return to such heights.

Amine Harit rose from £0.73 to £1.93 when he hit form and has since falled to £1.38

What not to do?

Whilst the market being more reactive than ever can create the opportunity to make huge returns, it is also easier than ever to make losses.

Below are tips on what to avoid doing to ensure you avoid making losses in a more reactive, volatile market:

  • Only attempt to catch rises in reaction to events if you have the time and lifestyle to successfully make it work

  • Avoid buying players just because they are rising

  • Avoid holding onto players who have spiked in price and have become over-valued

  • Avoid simply following the rest of the market

  • Avoid paying too much for a player because they are currently in good form - a great player is not a great investment if you pay too much for it

  • Avoid attempting to catch rises by often instant selling players (Paying more in commission), unless you are confident the profit made will make up for this loss via commission

  • Avoid giving in to fear of a further drop and selling value players at too low a price

  • Do not be worried about unjustified, temporary market declines in value players

© 2019 by Football Index Club

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