Good Times
The markets have been closing at record highs recently. It looks like we are in for some good times. So what can go wrong? Plenty, if you are not careful.
Overconfidence may be the biggest concern. With all the pessimistic market forecasts in the media during the past few months, many traders may have been in the doldrums, feeling stuck as if we were in for a serious long-term economic slowdown. They may have wondered whether circumstances were ever going to improve, and now that market conditions have improved (at least temporarily), some traders may be relieved. Relief after a period of dark despair can often result in exuberant euphoria, however. Many traders may be so optimistic that they think it is time to make some easy money. But trading the markets profitably is never easy. It's not a good idea to ever let your guard down. Your long-term survival depends on paying attention to risk limits, and making sure that you limit the amount you risk on any single trade. It may be tempting to invest more capital than usual during this temporary boom, but you may pay for it if you are wrong. Sure, many stocks are going up, but the re still may be downgrades or bleak financial forecasts for any given company. The markets are never certain. It's not clear what will happen next. For example, a company like Hewlett Packard went up despite the fact that it was in the midst of an investigation, while a company like Apple Computer went down because it was reported that the new video iPod would not be released before the Christmas shopping season. How the market reacts to news events is rarely certain and difficult to anticipate. Just because we are in a boom does not mean that any stock we pick is bound to go up. Don't be overconfident. Temper your optimism with caution.
Some traders may react to the temporary boom with optimism, but other traders may feel overwhelmed. When market conditions are less than optimal, many traders rightly decide to stand aside. But when market conditions rebound, these same traders may feel compelled to trade the markets in earnest. And unfortunately, they may put extra pressure on themselves to perform. They may think that they must make a profit, since trading conditions are better than they have been in a long time. Nothing is easy, though. Just because market conditions are better than usual does not mean that anyone can trade and make a profit. It still takes skill. Putting unnecessary pressure on yourself to trade more profitably than usual will just make you feel stressed out and will increase the odds that you will make trading errors. It's vital to remember that you don't have to be perfect. You don't have to find every possible market opportunity. Just do your best. There may be more opportunities in th e next few weeks than usual, but that doesn't mean you have to find them all. Don't set objectives that you can't meet. Be realistic. If you can trade with a relaxed mindset, you'll see high probability setups and you will take home profits. Don't force it. Just let it happen.
Times are good, but you won't make profits if you are over-confident or overly optimistic. Take advantage of the times through realistic planning and diligent, hard work. If you do, you will find that good times will lead to huge profits.
