I thought I'd touch up on my previous blog detailing the emotional state of panic and how it affects our trading decisions. Its nowhere more evident than the trading action we saw last week as markets worldwide plunged in a hurried frenzy to exit at all costs to protect the little gains which have materialized from the previous rally we had.
Panic evokes a heighten sense of urgency and as the year draws to a close traders become more vulnerable to slipping into these mind sets. As I had said in my car problematic experience, simple tasks such as finding my location were restrained while my instinctive thoughts flooded my mind and crowded my degree of rationale.
I wanted to deal with that today with a very practical example. Going back to the grips of October madness, markets were able to bounce from the lows and surge their way back in a stellar run. One stock which showed such a bold effort was Richemont which fell out of favour with investors in July of this year and took a beating all the way down from it's highs to lows last seen in June 2013.
Although the results which came out on 7th November were not what many would call fireworks, most saw them as better than what they had expected and rallied the price close to the all important R100 mark. At the same time the Top 40 was being met with some resistance as the Bulls ran out of steam and the Bears started licking their lips. What ensued was a start of a selloff which had all the substance but was abruptly halted by news out of China regarding possible stimulus.
But once again the Top 40 was met with resistance and Bulls began to panic and sell off the market but here lies the divergence, Richemont continued its ascent and with much vigour. If you had your blinkers on you'd only see the distress overall yet miss a perfect trading opportunity on the contrary.
This once again stresses the importance of managing your emotions which are a key priority throughout the trading process. Panic will always be present when there is a large contagion of volatility around. Traders who neglect their trading plan in adverse conditions get caught on the wrong foot and within an instant find themselves in a daunting decision making process.
Its highlighted some important aspects in my own trading namely:
- Be aware of the volatility which is influential of market conditions. Earlier in the year most traders were bored out of their minds sleeping at their screens with the lack of any movement now just a few months later there seems to be a heightened awareness to daily movements. Volatility not only affects the individual trader but all traders, something never to forget.
- Although there is high volatility in the market and uncertainty lying around it doesn't mean that there aren't opportunities on offer in the market. A great example is Richemont which is still putting in hard work to get back to the top as others simply slump.
- When you position yourself do so with a small size first and see the conviction of the follow through, once you get the confirmation you can begin to add to the existing position. Its imperative you do this because uncertainty can bite the socks off your stock at any given time.
So in saying all that, as we approach the end of the year fast I would hope that most of you have started reflecting back on your performance and most importantly your progression and start building a plan for your trading journey in 2015.
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