Is stock trading difficult? Depends on who you ask. A seasoned trader with the discipline to follow well honed principles will say “trading is not difficult. See how I take losses and let my winners run?” A battered and bruised, emotionally unstable trader will say “the market is difficult. I am getting my @ss handed to me on a platter and it hurts!” A breakeven trader will say, “compared to my broker I am not doing so bad.” Our perspective makes all the difference in our success of failure. If we can have the proper perspective then the market cannot hurt us. The proper perspective includes, but is not limited to, the following: The market will do what it wants to do when it wants to do it regardless of the technical games we play. We win some lose some, in no particular order, on any given strategy. The only trading mistake that matters is when future uncertainty is not properly considered an essential element of risk. The long-term process, not short term outcomes, builds the consistency necessary to tackle market uncertainty. Responsibility accepted before the trade becomes the disciple that carries us through the trade. The best money is oftentimes made by being a non-participating, impartial observer.
So the next time someone asks if stock trading is difficult. What will be our answer? Will it be based on the proper perspective or on the last trade we made? On emotions? On our reaction to price action? News? Compared to what? A successful bust or a skinned knee? The answer can make a difference. |
Archives of “market uncertainty” tag
rssUncertainty
1) Uncertainty is always subjective. It is a state of mind that is derived from a mix of objective data, emotions and personal experience. To say that the market is always equally uncertain is to say that mood is always the same. It is not. It constantly changes.
If the perceived uncertainty is always the same, earnings reports would not have such huge impact on prices. We all know that this is not the case. In many cases, earnings reports provide new data that changes market expectations and therefore prices. Options premium is higher before earnings exactly because uncertainty is higher.
2) Uncertainty has become a synonym for bad mood in our everyday life.
The future is always uncertain, but our perceptions of the future vary. And perceptions define actions. Actions (supply and demand) define prices. Somehow uncertainty is used with a highly negative connotation in our everyday life. It is a game of words. Just like the weather people always say that there is a 30% chance of rain and never that there is 70% chance of sun.
3) Uncertainty is basically another word for market sentiment. High levels of perceived uncertainty (bad mood) and high levels of perceived certainty (good mood) have historically been good contrarian indicators, IF your investing horizon is long enough.
4) There are different types of uncertainty.
There is an economic uncertainty. Uncertainty leads to a decline in economic activity. Less people are hired. Old machines and software licences are used longer. Investments are cut. This is what it has been happening in Europe for 2 years.
There is market uncertainty that impacts volatility. When correlation is close to 1.0 (another way to say that stocks move together disregarding of their individual characteristics), uncertainty is perceived as high. It leads to choppy environment that market timers prefer to sit out in order to preserve monetary and mental capital. Perceptions define reality.