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Warrior Trading’s Ross Cameron Explains What ESG Means for the Day Trader (And What It Doesn’t)

Environmental, social, and governance investing is a hot topic in both the retail and institutional investment worlds. As the term suggests, ESG is a style of investing that factors in considerations involving the environmental implications, social issues, and the corporate governance of companies. For some investors looking for companies in which to hold long positions, ESG might make a lot of sense. But what does ESG mean for day traders, who are typically holding stocks for short periods of time — from five minutes up to a few hours? Warrior Trading’s Ross Cameron shares his take on the intersection of ESG and day-trading.

What Is ESG Investing?

Imagine you’re looking for a real estate investment in Florida but you’re worried about rising sea levels. Might not be a good idea to buy beachfront property somewhere that’s increasingly prone to flooding, right? Or you might believe that fossil fuels are bad for the environment, so you decide to invest in an electronic vehicle manufacturer like Tesla because you believe not only is it the right thing to do, but that more people in the future will buy electric cars over gas-guzzlers. These are examples of investing with the “E” in ESG in mind: environmental.

Social — the “S” in ESG — considerations are when investors vote with their money when they believe a company isn’t being socially responsible — like refusing to invest in companies that sell tobacco, test their products on animals, or use child labor to manufacture their wares.

The “G” in ESG stands for governance. Governance-minded ESG investors look for companies that are governed well. Governance factors include making sure the company uses the right corporate performance metrics, adheres to health and safety regulations, discloses information properly, and has good auditing and corporate compliance.

The key word for proponents of ESG is sustainability. ESG advocates say that if companies aren’t considering environmental, social, and governance issues in their decision-making, they’re unlikely to have sustainable business strategies — and therefore aren’t smart investment choices.

But there’s a lot of debate over whether or not ESG is a valid framework for investing. Detractors of ESG say that the criteria is either too vague or that it doesn’t actually help investors find successful companies to invest in.

Warrior Trading’s Ross Cameron’s Take on ESG

To choose stocks based on ESG criteria requires looking at the underlying company’s fundamentals, says Warrior Trading’ Ross Cameron.

A company’s fundamentals are its profitability, revenue, assets, liabilities, growth potential, and corporate statements.

ESG information is often contained in corporate statements and company policies.

To choose a stock to day-trade based on ESG criteria would mean analyzing company news, and making a determination on the likely price movement of a stock based on what you think the market’s reaction to that news might be, says Cameron.

“ESG doesn’t have a lot of bearing for day-trading,” Cameron explains. “It’s one of these things that is a hot topic. And there could be some sympathy sectors and some industries in which it comes up.”

For instance, Cameron explains that some stocks get more hype because they are servicing more established companies to help them meet ESG regulations — like ESG consulting companies.

Or they might have products that meet a particular environmental or social need.

Cameron explains that during the pandemic, for instance, any company that was coming out with anything related to COVID was a really strong buy.

“Back in 2012-14, during the Ebola crisis, companies that made hazmat suits got really hyped up,” says Cameron. “But really, ESG hasn’t been much of a topic for day traders.”

Cameron thinks ESG is still a “little too nuanced to matter right now” for day traders.

The problem, says Cameron, is that to try to use ESG criteria in day-trading, a trader needs to pore through the company news and anticipate how the market would react based on environmental, social, and governance requirements.

“It can be very confusing, as a trader focusing on very short duration and short time frames, to try to understand fundamental analysis, because sometimes you’ll have news that seemingly is good, but the stock will go down,” says Cameron. “To really understand [how ESG criteria can move a stock] requires understanding the company better to understand the context of the news.”

What Warrior Trading’s Ross Cameron Does To Find a Stock To Trade

Because of the nature of day-trading, Cameron says he doesn’t spend a lot of time trying to analyze the fundamentals of a company.

“My average trades are five minutes long. They’re very short. So, I am capitalizing on short-term periods of volatility. Those can be the result of breaking news, but what I focus on is the price action,” says Cameron.

Price action is the movement of a stock’s price, plotted on a chart over a specific time period — like an hour, day, week, or year. Price action is actually the indicator that forms the basis of a technique known as technical analysis — a way to understand how a stock, commodity, or other asset moves. Price action is what many short-term traders rely on exclusively to make decisions on what stock to target. They look at how the price action chart is formed and try to extrapolate trends in how it might behave in the future.

By looking for patterns, trends, and other signals from the charts, day traders can decide whether they want to enter or exit a trade, as well as identify areas of support or resistance in the stock.

“Ultimately, the price action is almost reading the news for me, because the price action is either positive and reacting well, or the price action is negative and reacting poorly. And that tells me what the news is — whether it’s good or bad,” says Warrior Trading’s Ross Cameron.

So while for some people, ESG might be a smart way to invest long term, Warrior Trading’s Cameron doesn’t see a lot of use for it in the typical day trader’s strategy. Day-trading is all about reading price activity. It’s about volatility and volume. There may well be an ESG rationale for a stock moving up or down, but ultimately it will be the charts that will tell you whether or not a stock is a good.