MyValueResearch

Emotions that drive the market…

Financial trading can be termed as one of the largest business in the world but it may also be the least understood business as well. Sudden moves are a mystery to most, arriving when least expected & appearing to have little logic attached with them. Frequently doing the exact opposite to a trader’s intuitive judgment.

It is said that upto 90% of the traders remains on the loosing side of the stock market. Even those who make their living from trading, particularly the brokers, who you would expect to have a detailed knowledge of the causes & effects in their chosen field, very often know little about how the markets work. In most of the cases, Big players create an imbalance between supply & demand and that leads to a trend depending on the conditions prevailing in the market.

“Technical Analysis” is the close study of actions & reactions of specialists & market makers, which gives an idea about the future market behavior. A deep understanding of human psychology is must for a technical analyst, which derives decision being taken in the market. A professional trader is very good at deciding which of the listed shares are worth buying & vice versa. He tries to hit the right emotion at the right time as per his benefit.

We all have heard of the term “Resistance”, but actually what does it mean? “Resistance” to any up move is caused by somebody selling the stock as soon as any rally starts. In other words, professional trader tries to remove the floating supply without any significant up move in the price against his own buying level.

Most traders new to the market become a weak trader, as they avoid accepting losses with the fear of losing their capital. A weak trader is the one who get locked in at higher levels as market starts behaving against their expectations. They can only hope & pray that market come back to their entry level.

A bull phase in the market takes place when stocks are substantially transferred in the hands of strong trader from a weak trader at the loss of weak trader & vice versa. There are two principles working in the stock market, which causes turns in the market. These principles work with varying intensities causing larger or smaller moves.

· Principal one: -When you hear about panic after substantial falls & prepare yourself to sell on bunch of bad news. Just ask yourself: - Are the trading syndicates & market makers all set to absorb the panic at these price levels? If the answer is Yes then it is clear indication of “Strength” in the market.

· Principal two: -When you hear about substantial rise & start feeling annoyed on missing up moves and waiting for a good news to have a long position. Just ask yourself: -Are the trading syndicates & market makers are selling in this bull market? If the answer is Yes, then it is the clear indication of “Weakness” in the market.

All the important facts around the world are collected and presented in front of you in the most interesting, entertaining & easily assimilated form over a cup of Tea. All these are very interesting till the time you decide to trade in the market. Trading in the market is exposing yourself to risk, in order to get returns. You enter into the arena where your skills as a trader are going to be tested severely. News is no longer entertaining but rather become a worry for you. When you come to know a story that may affect your interests, just ask your self-3 questions: -
· What does this story mean (if it is True) in the overall context of my prior analysis of the market?
· How others can use this story?
· How can I use it to make my position better?

*WEALTH WARNING: - It has been determined that believing to the news may prove to be injurious for your wealth.

To become a professional, you have to think and act like the one. You have to turn away from running with the herd & become a predator, buying on great opportunities caused by a variety of ‘bad news’. As you need to buy on bad news, which has produced a ‘shakeout’ in the market and sell on good news after you have already seen a substantial bull market. One should never forget that market makers & specialists never miss any moneymaking opportunities. This unfavorable news provides the best opportunities as they help to shake weak traders out of the market.

Big players play with the news as with the help of media, they come out with good or bad news, as per their benefit. Moreover that news is made public mostly over a weekend or on holidays. As by marking the market either up or down late in the evening session on Friday or the day before a holiday commences. Media have to create a reason for the move. As a result, a weak trader spends the weekend in a dilemma, about his position. This impels weak trader to create panic and take impulsive decisions on next trading session.

Most persons want to become full time trader but the problem is that it is very easy to be wiped out during the learning process. Some lucky people have the skills to make money from the stock market. This is because they are skilled at money management & taking risks.

The stock market by its very nature is designed for a weak trader to loose money. The constant rallies & reactions ensure this process at work constantly. The market behaves this way because the weak have to perish so that the strong can survive. Professional traders are fully aware of weakness in traders under stress & will capitalize on this at every opportunity.

A professional analyst can provide you with some recommendations or tips, but you have to be your own judge & decide upon your limits. As two traders can never be alike, their resources & needs may differ in numerous manners. In the market you are like a cat with nine lives, may be you have lost two, but you still have seven others to live for. In using your system you must not only Accept losses but also Expect them.

To overcome these problems you need to develop a disciplined trading system for yourself. A system must be based on some form of sound reasoning & logic. A system strictly followed avoids emotion because like the trained soldier you have already done all the thinking before the problems arrives. This should then force you to act correctly even when you are under stress.