Tuesday, October 21, 2008

Reacting to the Market

Reacting to the market is a lesson every trader should learn. It is much simpler and much more profitable then to just react to the market then to try to understand it.

Too many traders try to explain a big move. For instance most people will say that stocks fell because of the unemployment numbers that just came out, or the interest rates that were announced or some other important news factor that came out today.

And they may be right, there could be hundreds of reasons why the market falls on any given day, but is it really worth it to find out. In most cases the answer is no.

Stocks fall because of panic, more sellers than buyers. Stocks shoot up because of greed, more buyers than sellers. Many times it can actually help you to weed out all the noise that comes from Wall Street and make decisions based on what you see.

If you are a technical trader that is what you should do. Don’t concern yourself with the fact that everyone says we are in the worst depression since whenever. Concentrate on the basics, is the market up trending? Is it down trending? Has it broken support? Any Chart patterns forming?

The basics will help you to stay calm and look at the market with a clear mind rather than looking at it with hundreds of news reports running through your head. Perhaps the most important reason for just reacting to the market is that it helps to eliminate bias.

You can listen to the news and hear all the reasons why a given stock is going to go up. The problem is when it comes time to see how the stock is actually performing you will have a bias to the upside. Even if the stock is in a strong downtrend you can always find some news out there that can justify buying it.

But justifying your buying isn’t always enough. If a stock is clearly trending down and breaking through support there is no reason for you to buy it. In fact you may even want to short it.

Basically it does not help you to try to explain or rationalize things by looking at the short term news reports. It can help you much more to weed all the useless junk out and concentrate on your own specific trading rules.

For more information about the stock market visit http://www.stocks-simplified.com

No comments: