The way the market is moving has brought up a lot of questions, and a lot of frustration for many. And there are lots of things we could talk about when looking at it. We could talk about why we were being so patient with the market. We could talk about position sizing or why we need to adjust our risk management. We could talk about what levels the market is using and what they are telling us to watch for.
Instead of any of that, let’s talk about something that can completely mess up our success no matter how much we know about the technicals in the market. Today let’s talk about FEAR and a closely related feeling FRUSTRATION.
Over the past couple months, the character of the market has changed. The steady, methodical, low volatility uptrend we were experiencing has changed to high volatility, directionless, back and forth movement. One day we are up, one day we are down. Headlines about the market moving more than 700 points are popping up. As are headlines about volatility reminiscent of the 1987 crash.
Have you experienced emotional reactions with the movement of the market?
Most of the people we’ve been talking with have been sharing a very common emotion, FRUSTRATION. Frustration that the trades they are taking are not working out. Some are completely reversing the next day and going against them. Some are starting to move and look like they are ok, then a couple days later they have completely changed. A few are getting to the first target, so the traders hold on hoping for bigger profits only to see the stock move completely against them a few days later.
Some have seen the number of losing trades increase to a point that they are moving into FEAR. Fear as they watch their account balance decline and they find themselves getting stuck, unable to make clear decisions about the next trade.
Others are seeing the big movements that are being made and are jumping into action. Rushing into trades without considering if it fits with their plan. This is also driven by a fear. The Fear of Missing Out. In our fast-paced, always on, instant communication world, the occurrences of this fear is on the rise and in fact, in 2013, the word FoMo was added to the Oxford English Dictionary. FoMo, the “fear of missing out” refers to the feeling of “anxiety that an exciting or interesting event may currently be happening elsewhere”.
In the case of a trader, we open up a chart, or we get a tweet or message or some sort of alert that says “Hey … the market is making a massive move (plunge, crash, ramp, etc) AND YOU ARE MISSING IT!”. Talk about a perfect trigger for this emotional response. Commonly what we hear from traders is they “didn’t expect the market to move like that”, and they were “stunned” and they “watched it move without them” … and then what happens is that the fear response builds to a point that is unbearable and they need to DO something to alleviate it. And most of the time that something becomes an irrational reaction like chasing the market and jumping impulsively into a trade way too late. Most times only to get stopped out before the trade moves in their favour.
Have you been finding this?
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