There is a certain mindset you must have when trading the stock markets during a recession. It's so important to understand its importance right from the beginning, or else you're dead in the water. Read on to discover what this mindset is and how to harness it to better ensure your success as a stock trader.
Knowing when to hold'em and when to fold'em is a difficult and seeming impossible task at times us traders face through the course of a trading session.
The mindset that you must have is that of an athlete. It takes focus, rigorous training, determination, and courage. An athlete gets ready for a track meet through the right coaching and training. I believe that repetition of the fundamentals is the key to developing the same type of mind set for trading stocks, bonds, and commodities.
The first lesson about developing a solid mindset is how to handle the news. We need to develop numbness of personal feelings towards the news.Then we should be looking at how the markets digest the news and how we traders go forward with our lives after the news rips through the markets.
The news is so hard to handle because of all the communications tools that we have available. It is splashed all over. The news is on at 5:00, 6:00, 24/7 on cnbc, Bloomberg, at the gym on the treadmill, in the waiting room at the repair shop … I think you get the point. It's everywhere.
You really have to train yourself to weed through the news, look at your stocks that you are trading, and see how it affects that particular sector, if at all. Then, after a few days or so, resume normal activity as a trader.
The ying yang effect applications here. Constantly pulling and tugging on your mind. It will make you insane if you let it. Your mind set, if trained properly, will override the minutia of the news.
A most recent example of the big news is the recession coupled with a failure in the banking system, troubled auto industry, and airline industry.
The United States Banking System has been brought to its knees causing a world wide rippling effect on several economies. Think about it. If the people who have loans can not pay the monthly payment because they lost their job and can not find another because of the local conditions, then housing prices are going down due to lack of lending. Then what happens is the spiraling effect of this activity continues until earnings start to improve, companies begin hiring again, and then the whole cycle starts up again.
This is where we are now.
This crash and build up happened all within the last 18 months … Much faster than most professionals and the so-called "experts" have expected.
But the fundamentals the have not changed. And had trained yourself to look for great value buys, you would have made good returns on your money.
Let's take Ford Motor Company for example:
During those huge decline days of the September-November 2008 time frame, Ford was trading at 3.50 per share. The high that it reached was 14.00 last month and currently it sits at 12.50. Your mind set should override the news. Had you have invested back then, despite what the news was trying to feed your mind, you would have made almost 400% return.
What is your mind set saying on a 900 point decline in the Dow? Walk away then run?
But if you had said, "hey lets look for some opportunities here.," You would have been very happy with your returns.
Let me go out on a limit and say that I predict that the top has been reached in the markets from its recent bull run. In the news now we are hearing that you must get in if you missed the last run. "Now is the time." bla bla bla.
If you hear it on the news, beware because its just about over move to cash. Instead, wait for another steep decline.
So as you can see, having the right mindset while stock trading is crucial. So take inventory of yours right now before you make your next trade.
Always remember, the trend is your friend until the end.
Source by JP Hools