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Are You Trading The
Markets?
Or Are The Markets Trading You?
Markets go up and markets go down. It shouldn't matter
much, but many new market timers (and traders) 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 new lows.
Why do market trends have such power over emotions?
They don't need to, but many new timers have difficulty cultivating an objective
mind set. 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.
Following The Crowd
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.
| "...a trader
with a losing position panics, hopes that things
will turn around, and waits for events that are
unlikely to happen." |
However, when the market turns around, feelings of safety
and security can turn instantly into fear and panic. 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. But there's a psychological issue
as well.
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It is difficult to know how to handle falling stock
market prices. For example, humans tend to be risk averse.
When one is going long and the markets suddenly turn,
it's hard to accept losses, and sell off a losing position
before more damage is done.
Denial and avoidance set in. At that point, a trader with a losing position panics,
hopes that things will turn around, and waits for events that are unlikely to
happen.
Usually the price continues to fall, heavy losses are incurred, and as expected,
disappointment and despair set in.
Emotions And Decision Making
It's crucial for your success 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'll likely see losses as a timer and that you should expect to see the
markets turn against you. Small losses are an unavoidable part of dealing with
the stock market. The trick is, keep them small.
Follow a proven trading strategy and stick with the plan.
Don't allow your moods to fluctuate with the ups and downs of the markets. By
trading in a disciplined, methodical manner, you can cultivate an objective,
logical mind set that isn't overly influenced by market moods.
Armed with the right mind set, a disciplined trading approach, and a trading
strategy, you will be able to realize over time, the profits of successful market
timers.
Recent articles from the Fibtimer market timing services;
© Copyright 1996-2019, 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. |
