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From Euphoria To Despair,
How Market Moods
Affect Your Trading
Markets go up. Markets go down.
It shouldn't matter much, but many new market timers find
that their own personal mood fluctuates with the markets,
moving from extreme euphoria as the markets soar to new
heights to deep despair when the markets plunge to abysmal
lows.
Why do market trends have such power over emotions?
Moods And Decisions
They don't need to, but many new market timers have difficulty keeping an objective
mindset. They allow fear and greed to influence their trading decisions. They
tend to follow the masses, and when they go with the crowd, they soon find that
market trends not only influence their moods but their account balance as well.
There's a strong tendency to follow the crowd. There is a feeling of safety in
numbers.
When you see a steady upward trend, you feel secure. Everyone is buying. They
are all doing the same thing. When other people offer confirmation of your decisions,
you feel safe and assured.
In a bull market, it isn't so bad to follow the crowd. When it's a strong bull
market, the crowd is often right, and it makes sense to follow them. However,
when the market turns around, feelings of safety and security can turn instantly
into fear and panic.
Disappointment And Despair
Why? An obvious reason is that many new market timers don't have the ability
or financial resources to sell short, and take advantage of a bear market. Using
bear funds does level the playing field, but there is a psychological issue as
well. It is difficult to know how to handle falling prices.
| ""Trading
by the seat of your pants is NOT the way to profits.
It is, however, the way to ruin." |
For example, humans tend to be risk averse. When one is in
a long (bullish) position and the markets suddenly turn,
it's hard to accept losses, and even harder to execute a
sell signal to protect capital before more damage is done.
Denial and avoidance set in. At that point, a market timer with a losing position
panics, hopes that things will turn around, and waits for events that are unlikely
to happen.
Usually market prices continue to fall, heavy losses are incurred, and as expected,
disappointment and despair set in.
Think Of The Big Picture
It's critical to your survival as a market timer to stay calm and objective.
Don't let your emotions interfere with your decision-making.
How do you stay detached and relaxed?
First, it's important to accept the fact that you will likely see many small
losses as a market timer and that you should "expect" to see the markets turn
against you.
Second, it's important to manage risk. Assume that the markets are likely to
go against you occasionally. Don't risk too much on a single trade. Diversity
has a place in market timing as well as all trading. Most of FibTimer's strategies
have diversity built into them. Be sure to follow them as they were designed
to be followed.
Think of the big picture; the long-term profits across a series of trades are
all that matters, not the result of a single trade.
Third, follow a timing strategy with discipline. Trading by the seat of your
pants is NOT the way to profits. It is, however, the way to ruin.
Conclusion
Don't allow your moods to fluctuate with the ups and downs of the markets. By
trading in a disciplined manner, you can cultivate an unemotional, logical mindset
that isn't overly influenced by market moods.
Armed with the right mindset and a disciplined timing strategy, you will be able
to realize the huge profits that winning market timers achieve over time.
Recent articles from the FibTimer market timing services;
The Grass Is Not Greener On The Other Side
Sector Timing for Conservative Market Timers
Following an Unemotional Trading Plan Equals Profits
Beliefs of Successful Market Timers
Aiming For The Moon!
The Compulsive Impulsive Trader
Hope May Spring Eternal, But It Won't Make You Money
Handling Stock Market Hardballs
It's All In How You Play The Game
A Butterfly Flaps Its Wings...Chaos Theory And The Financial Markets
Money And Emotions
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© Copyright 1996-2011, Market Timing Strategies, Inc.,
All Rights Reserved.
FibTimer reports may not be redistributed without
permission.
Disclaimer: The financial markets are risky. Investing is
risky. Past performance does not guarantee future performance.
The foregoing has been prepared solely for informational
purposes and is not a solicitation, or an offer to buy or
sell any security. Opinions are based on historical research
and data believed reliable, but there is no guarantee that
future results will be profitable. |
