With markets being so turbulent, how are you handling your trading?
These days, we are witnessing the common modes of operation: Fear and Panic. People are worried about their future. They are thinking, “How can I pay my mortgage, my children’s college expenses and what is happening to my retirement account?”
The uncertainty is uncomfortable.
Some feel that the devil they know is better than the one they don’t know.
The majority can’t deal with volatility and that is why they have given their money to others to invest. If they have invested themselves, it is in mutual funds or long-term investments. Because they are not comfortable with the high volatility, they are flying to cash and we are seeing all the redemptions…
These are challenging times. What are your options in these markets?
1. Know your Emotional Risk Profile (ERP)
This is about knowing who you are and how you react under different market conditions. It is about finding out if your ERP matches the strategies that you have in place.
If market conditions make you uncomfortable, the tension is too much for you and it is impacting your health, at the first chance, get out of the market.
This will give you an option to match your ERP with your strategies so you can get much better results.
Donald Trump says, “Sometimes by losing a battle, you find a new way to win the war.”
2. Lessen your Input
These days, everybody is talking about the markets and how it is impacting their lives. Limit the amount of your conversations and filter the information you are hearing or reading. Don’t be glued to the TV and the internet. You need to be aware, but make sure that you listen to the people that you respect.
When you immerse yourself in the negative news, it is hard to stand aside and make objective decisions based on your desired goals.
There is a quote by Warren Buffett that “A public-opinion poll is no substitute for thought.”
3. Manage your Expectation
Frustration comes when we have unmet expectations. We assume that we should have a crystal ball and know what is going to happen. Worse, we think, “How come markets do these things to us?”
The truth of the matter is that the markets are neutral and they do not care. It is about us and what our expectations of the markets are.
Epictetus has a saying: “We are not troubled by things themselves, but by our thoughts about them.”
4. Be Flexible
When you notice the market changes, ask yourself if the assumptions that you entered the trade, are still valid. If they aren’t, then get out of the trade.
When you do, you give yourself a chance to think clearly and come from a more objective place.
James Dean says, “I can’t change the direction of the wind, but I can adjust my sails to always reach my destination.”
5. Manage your Energy
Where is your focus? Are you focusing on the challenges or on the solutions? Do the activities that you are involved in energize you or drain you?
Who are the people around you? Do you feel more inspired or discouraged after spending time with them?
It is up to you where you put your focus. Remember, when you have less energy, you are drained and when you are drained, you can’t think objectively.
If you don’t mange your energy and set boundaries, others will do it for you.
To summarize, the 5 steps we can take to handle the turbulence of trading are:
1. Know your Emotional Risk Profile (ERP)
2. Lessen your Input
3. Manage your Expectation
4. Be Flexible
5. Manage your Energy
Charles Darwin says, “It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change.”
Here is to making trading success your habit™,
