Dealing with Market Fluctuations

The Stockmarket, for the share investor and share trader, can be an emotional roller coaster; the changes can sometimes be difficult to come to terms with. Share traders may find their personal moods reflecting the market: buoyant and bubbly for days on end while the market is bullish and dejected and withdrawn during periods when the market is bearish.

For the short-term ETO or CFD trader, coping with intraday volatility can also be emotionally demanding. 

Trading Plans

It is in these “roller coaster” periods that many traders become too emotionally involved in the market and abandon their trading plan with its clearly defined rules and objectives. A run of roller-coaster losses has the knack of pushing many a trader toward alternative concepts. Number one on the list is tuning in attentively to the print and electronic media. Of most concern is the print media as it is a lagging indicator reflecting yesterday’s news. For the short-term trader a day can be a long time. Adapting to the financial headlines of yesterday can pave the way to further losing trading habits as the general media tends to jump from one bandwagon to the next. 

Avoid the Hype

As is known, the media as a whole encourages euphoria during the good times and plays on the fears of the investor and trader with words of doom and gloom during the bad. Indeed, their swing from heady headlines to stories of calamity can be measured in days. It is very easy to join the herd and believe the hype. Clearly the wild price swings encountered by the sentiment-driven stocks such as Macquarie Bank (MQG) and Babcock and Brown (BNB) over the 2007 / 2008 period. Their share price moves were exaggerated by the media hype surrounding the 'glamorous' image. 

What can you do to ride above the crowd that may start to panic?

As a general concept, most people (read investors/traders) are generally risk-adverse and as such, they find it difficult to take a loss. Rather than accept the loss, it is common for traders of minimal to moderate levels of experience to fall back onto the easier path of avoidance and denial, hoping that the market will turn in their favour again. Despite their well-laid out trading plan, many traders with this temporary aversion to reality begin to ignore previously established stop loss levels that have been proven so important in the past. Moreover, many are afraid or ignorant of short selling shares. 

Losses are Part of Trading

Be aware that as a trader it is important to accept that you are likely to experience many losses during your trading life. At any point when you feel the market has turned against you, it is essential to sell out of your losing trades and preserve capital. Always abide by your trading providing it has the necessary safeguards in place such as; effective stop loss limits, spreading your trading bank into different trades across various sectors and taking the necessary “time out” from the market to recharge your batteries.

Remember that long-term profit across a series of trades is the objective, not just the reliance on the 'big one'. So with a well thought out trading plan, a disciplined and methodical approach and emotional detachment from the market moods a trader is better positioned to realise long-term profits.

When the market is running well and everything seems good, abiding by a documented trading plan seems second nature. The ability of the trader to persist with their trading rules when the market turns against them is the key to long-term success.