Panic Mechanic

As December trading got off to a panic stricken start , nothing quite beats that sinking feeling watching the market fall through the floor knowing you're on the opposite end of it. The old trading adage goes "Bulls take the stairs , Bears jump out the window."

The weekend passed I experienced a similar situation while driving home from a friends house late in the evening. My car decided that 12am would be the most appropriate time to issue it's grievance about its own condition and subsequently broke down on the side of a highway.

It's in that immediate situation when the information most needed to help you dissipates as your logical reason is strangled . Panic takes over and irrational actions follow. I had managed to get hold of someone but found it strangely hard to explain my location which I had been very familiar with. I was cursing at the fact my car was broken rather than delivering the most important facts that would aid me to be helped.

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It struck me there and then that the only human mechanism working was my emotional responses. Fear flooded my mind and panic was beginning to set in but I knew I had to keep calm. I recalled methods I've used in trading when things get heated in the market. The worse thing to do is do something you're going to regret later so it would be imperative to think carefully about my options. 

The second I let go of the fact that I was stuck the information I needed the most came easy. I made sure I was mindful of everything. To give you an example I had been 350m away from an off ramp which there was a huge sign stating so. I hadn't seen it when I was panicking and it would've cost me more frustration. 

The market operates in similar circumstances. When we start to see the plunge we start to panic and that's the most critical stage. You're fear of losing profits you've accumulated over the last weeks or even the massive loss you'd have to absorb each time the market is sinking can be a very daunting thought.

These thoughts are a normal part of the human reaction process when faced with possible disastrous or even dangerous situations. Our instinct is to hone in on the situation and negate the environment around us. Fight or Flight. This can be detrimental when trading when information is most vital when making a decision.

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You need to be aware of this and take precautions to prevent yourself from obstructing your own trading success. Be mindful of what is happening, although your most immediate thought will probably be to sell up and run for the hills. Before you do make sure that when you're doing so it's because of technical or fundamental reasoning and not based purely on emotions. 

Having witnessed the deadly sell off yesterday 1 December 2014, as I am writing this article there has been a swing upwards from the low to the highs of 1500 points. If you were one of the frantic sellers at the lows you certainly won't be very pleased with your decision making skills today.

This emphasises the importance of information processing as an integral part in trading. When information becomes blurred we are more prone to irrational decision making. However if we are able to identify the symptoms of panic we are better equipped to deal with these situations as they occur and less likely to make mistakes. 

If you would like to contact me you can through my email at cadetrader@gmail.com or if you wish to follow me on twitter and get the latest updates of news, interesting commentary and general trends in the market, my twitter handle is @CadeTradeR if you follow this link it’ll take you directly to my twitter timeline: https://twitter.com/CadeTradeR