This week I was talking to a student who had successfully graduated from my diploma course and was ready to step into the ‘real world’ of trading. This student had diligently completed the required research on a particular stock and all the signals were lining up, screaming ‘buy’ yet this person couldn’t pull the trigger. Why was this?
Quite simply, the reason for not taking the trade was due to a fear of loss. Such a feeling is quite common in those who are new to the markets. In fact, I expect my students to have this kind of experience as they begin to trade and I consider it perfectly normal. This type of fear only ever becomes a problem if you don’t possess the right tools to combat it. The easiest way to do this is to define your fear and then devise a technique to ensure it does not impact on your result. Notice I did not say eliminate the fear as the fear will always be there however, as human beings we have a choice as to how fear will define our actions.
In the case of my student, it was a fear of losing money. However you have to expect that when investing, particularly when it comes to trading, from time to time you will experience losing trades. The best way to overcome this fear is to simply think of trading like a business. In any business there are costs that are deducted from revenue. Any money left over from these costs is considered profit. Losing trades are simply the cost of your trading business. Your goal is to simply ensure you have more winning than losing trades and thus make a profit in the long run.
So what do we expect in the market?
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Following the stellar rise that saw our market burst through 5000 points, the All Ordinaries this week has slowed in pace as investors take profits off the table and await further signs of confidence before jumping back into the market. This type of slowdown in momentum is to be expected and is in fact quite normal particularly when we see major historic levels, such as 5000 points broken.
For regular readers you will know I discuss the market as unfolding in an uptrend for four to six weeks followed by a decline of one to two weeks prior to a resumption of the move up. We are now at the end of week five since the major low in late June and therefore we can expect to see a small pull back in the coming weeks to test support at the 5000 point mark before a resumption of the prevailing uptrend. Given this you may find some great investing opportunities opening up in the next week or so.