Posts Tagged ‘market psychology’
Fear and Fear drive the markets, not Fear and Greed
Monday, May 10th, 2010Fear is a Good Thing for Traders
Friday, May 7th, 2010Many of my clients are “afraid” or are experiencing “fear.” Fear is not always a bad thing, though. In fact, for traders, feeling fear is not a problem, as long as they don’t panic and allow it to drive them out of or in to trades.
Among the fears traders face:
- Not making enough money in these huge market moves
- Missing out on big trades
- Getting caught on the wrong side
At times like this, top traders see opportunity when others crawl into a hole because they are frozen by their fears.
Traders who keep their cool make money from the fear (i.e. shorting oil). Others keep their head and cut positions so they don’t get blown up (Greece and the ripple effect). Still others are waiting patiently for the moment to strike, like a sniper.
So how can all traders think like the top traders when it comes to fear?
- Lay out the data and look at it from an objective point of view.
- Pay attention to where the disconnects are because others are trading based on fear.
- Keep positions smaller with wider stops; be ready to get bigger quickly the moment the uncertainty starts clears up, which it always does.
Trade Well,
Dr. Doug
Volatility creates Opportunity for Traders Who Can Look Past the Noise
Friday, May 7th, 2010The Difference: Mediocrity vs. Greatness
Tuesday, March 2nd, 2010In Trading, the STATISTICS show that smarts, experience, etc. are not the differentiating factor.
The BEST (most successful guys I know and work with) have winning %’s of less than 50%.. actually, the average is between 45-55% but the point is, basically, winning percentages don’t matter – so they might as well be a random event.
So, what does make a difference?
- CONVICTION in ideas
- INTERNAL CONFIDENCE
- TRUSTING YOURSELF
- GETTING BIG IN TRADES you believe in
- LETTING WINNERS RUN
- CUTTING LOSERS QUICKLY
- SWITCHING DIRECTIONS QUICKLY
These are many of the factors that allow some people to become monster traders over time. It’s not my opinion, just my observations.
Trade Well,
Dr Doug
4 Reasons We Should Expect a Slow Summer
Thursday, June 25th, 2009
1) Professionals are Risk Averse
a. Major players in market are still licking wounds from last years losses. They have made back substantial amounts to get closer to their high water mark and now are starting to see redemptions slow down and even some positive cash flow into the funds. So last thing they want to do is press when the markets are hitting a range and risk giving back some of those profits from Q1 and Q2.
2) Government Mish Mosh
a. Lots of meetings, lots of talks on rebuilding, lots of unanswered questions….leads to too much uncertainty for professionals to build an investment theme based on significant catalysts.
3) The Risk/Reward Profile Stinks
a. Violent, but low liquidity moves are likely. When fewer players are in the mix, that means less buyers and sellers. This can cause sharp drops in prices on little or no news. For the professional this means that the risk/reward profile for his trades is not favorable and as a result, the best trade is to take a vacation and sit on the sidelines for now.
4) The Markets are Created by People
a. People have lives and families. Summer is typical vacation time for many or long weekend trips to summer homes. After the roller coaster ride this market has given us, many people are just exhausted and need some solid Rest and Recuperation time to charge up for the remainder of the year. When less people are trading the markets, then less volume is injected into the markets. Less volume means fewer trades/transactions.
Think Better and Trade Better,
Dr Doug
