Market Moods And Market
Markets go up and 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 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
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.
However, when the market turns around,
feelings of safety and security can turn quickly into
fear and panic. Why? One reason 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.
crucial for your success as a market timer
to stay calm and objective."
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
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 small 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, keeping them small.
Follow a trading strategy that is well tested such as those at Fibtimer. 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 well tested
trading strategy, you will be able to realize over time, the profits of successful
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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.