Don’t let emotions cloud your judgment…Mind over market
By, Shane Boudreau
Through my years of trading I have learned many things about the markets — some good, some bad, but all lessons. My biggest lesson seems to always come up in the emotion of a trade, when you see an entry you are sure will bring prosperity, only to have it drop. Instead of getting out, you sit and wait because you know it has to go up, because you have looked at the data. Then before long, the loss becomes too painful and you finally get out at a significant cost, only then- boom- it is back up!
What happened? Why did it drop and bounce? The answer more often than not is emotion. News comes out, the market and traders react, then the market equalizes, which happens time and time again. Such a dramatic example was the .com bust in early 2000 where the NASDAQ doubled in a year, traders were picking up anything and everything .com until they began to realize that there was no actual value, only a perceived value, causing a massive scare and subsequent crash. How about 2008, yes, when that dreaded bubble began again as traders overvalued the market, especially with respect to housing sectors. People were sure that rates would stay low and housing prices would continue to climb, but the market could not sustain such a high, causing mass exodus and a collapse into a recession. The market always corrects, if something is overvalued- it will come down. It is true that every trader has their go-to strategy, heck I know I do. It always seems to work, right? Not so much, as you see more often than not, the strategy is a way of playing off other traders’ emotions using support and resistance. Now who is to say that because a large percentage bought or sold at a specific point that the market will allow this to happen again, thus a pattern many subscribe to, a plan that now appears to have logic but ends up just an Illusion. Using a point created by emotion doesn’t necessarily become logic. It does become a guess and we are betting on this guess, so much so we begin to give it merit. So where does that leave us? The common answer from experts is that you should lose small and get out quick or ride the win and hold it, giving a winning strategy, right? I say wrong, let me draw you a picture, you know a heart monitor that has the blip on the screen, well the blip is like the markets, you want to catch that bottom and ride it to the top, that blip at the bottom well that’s the drop. how many of you have the nerve to play a drop in hopes it will rebound like the heart beat and then if it does, where and when should you get out before the drop comes back around? Unfortunately it is not a consistent as the heartbeat.
News seems to be the largest contributor of this reaction, whether it be a fed report or a terrorist attack, the same effect rings true. Your best bet is to guess which way the market will react. Sometimes the call for a rise in rates from the feds will bring a small dip then rocket up. Other times the opposite is true, how can you tell, or what should you do? The Paris attack that took so many lives, the uncertainty that arose from it, and of course, the drop in markets around the world with a quick bounce right after the drop, was not anticipated- who could have predicted that? The fact remains that no one can truly know, because it is based on the emotions and perceived emotions from those trading the same stocks or index. Whether a person behind a computer or a complex algorithm based on a combination of emotional responses and market data is the driving force, the result is still a calculated guess. For me, I do not want to guess, I want to know where the market is heading.
Ahh- now if only you could know! There are programs out there that take an educated guess as to where the highs are going in the next few months. Those are traditionally based on several- year moving averages. But wait, who is to say that the company will not crash on cash flow or earnings reports? Sorry, no one knows, it is predicated on guesswork at best. Trained analysts spend years researching and studying the flow of the market in hopes of a answering this. It is a question that has plagued the market since its inception as far back as the 1300’s with the Venetians, as the leaders began to trade securities from other nations betting on the value of the others goods. This carries through the NYSE in 1773, to our present time and it will continue, which is one certainty you can always count on in the market. It is all a perception of value, and how that translates into individual stock prices.
So, what if there were a way to eliminate the emotional traps that hit most all traders, a way to see the coming highs and lows? That would be amazing would it not? Well there are, analysts do a very good job of predicting the highs of the upcoming market pricing, however, this is kept to those with very large portfolios, in fact many reports put the number at $10+m accounts. We at VestIn believe there is a better way, and we mean to bring it to you. Within the next few months we will be releasing to the public a way to revolutionize the trading industry, giving power back to the investor with the tools currently only available to the uber rich.