By Frank Kollar
Markets Go Up & Markets Go Down
Markets go up and markets go down. It shouldn't matter much, butmany new market timers find that their own personal moodfluctuates with the markets, moving from extreme euphoria as themarkets soar to new heights to deep despair when the marketsplunge to new lows.
Why do market trends have such power over emotions?
They don't need to, but many new timers have difficultycultivating an objective mind set. They allow fear and greed toinfluence their trading decisions.
They tend to follow the masses, and when they go with thecrowd, they soon find that market trends not only influencetheir moods but their account balance as well.
Following The Crowd
There's a strong tendency to follow the crowd. There is afeeling of safety in numbers. When you see a steady upwardtrend, you feel secure. Everyone is buying. They are all doingthe same thing.
When other people offer confirmation of your decisions, you feelsafe and assured.
In a bull market, it isn't so bad to follow the crowd. When it'sa strong bull market, the crowd is often right, and it makessense to follow them.
However, when the market turns around, feelings of safety andsecurity can turn instantly into fear and panic. Why? An obviousreason is that many new market timers don't have the ability orfinancial resources to sell short, and take advantage of a bearmarket. But there's a psychological issue as well.
It is difficult to know how to handle falling stock marketprices. For example, humans tend to be risk averse. When one isgoing long and the markets suddenly turn, it's hard to acceptlosses, and sell off a losing position before more damage isdone.
Denial and avoidance set in. At that point, a trader with alosing position panics, hopes that things will turn around, andwaits 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 andobjective. Don't let your emotions interfere with yourdecision-making.
How do you stay detached and relaxed? First, it's important toaccept the fact that you'll likely see losses as a timer andthat you should expect to see the markets turn against you.Small losses are an unavoidable part of dealing with the stockmarket. The trick is, keep them small.
Follow the trading strategy and stick with the plan.
Don't allow your moods to fluctuate with the ups and downs ofthe markets. By trading in a disciplined, methodical manner, youcan cultivate an objective, logical mind set that isn't overlyinfluenced 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.
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