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Trading – Beware of trades of emotion and euphoria

What do common traders do when faced with a conflicting news that sends the market and share prices rocking back and forth?

Just like the roller coaster seen in the market and the stocks they are trading in, their emotions go on a roller coaster as well.

And that’s when they start to make bad decisions or overrate their trading ability and skills against the market.

Regardless of whether you are on the right or wrong side of the trades, you must beware of winning (or losing) trades borne of euphoria, hysteria or even excessive conflicting uncertainties.

Always be cautious against placing impulsive trades influenced by being caught up in such a situation on the market. Excessive euphoria or uncertainties in the market should be seen as a cautionary flag of a potential impending reversal.

Even if you are on the right side of the conflicting news or euphoria, lighten up or institute a tighter stop loss precautionary measure.

Parabolic price moves in either direction tend to end abruptly and sharply. If you are fortunate enough to be on the right side of a market in which the price move turns near vertical, consider scaling out of the position while the trend is still moving in your direction.

This is common sensed as well. If you would be petrified to be on the wrong side of the market in such as situation, this is probably a good sign that you should be lightening your position if you are on the winning side.

On the converse, you should always stop your trades out if you are on the wrong side of such situations regardless of whether there is any rationality in such moves. Markets and share prices could overshoot on both sides due to human behaviour and nature towards greed and fear and you do not want your trades to be caught in such times of “irrational exuberance or panic.”
Do not try to be 100 percent right in the market as much as you wish to (it’s a dream).

Almost every trader has had the experience of the market moving against a position sufficiently to raise significant concern regarding the potential additional loss, while still believing the position is correct.

Staying in the trade risks an uncomfortably large loss, but liquidating the trade risks abandoning a good position at nearly the worst possible point. Common traders tend to stay in and hope but hope is not a good strategy in the market, ever.

In such circumstances, elite traders make an all-or-nothing decision instead and liquidate all or at least part of the position.

Taking a partial loss is much easier than liquidating the entire position and will avoid the possibility of riding the entire position for a large loss. It will also preserve the potential for a partial recovery if the market turns around.

However, if the market continues to move against you or for you in an excessive manner, the balance of the position should be liquidated immediately.

You can’t predict all news in the market and neither should you. Staring at the screen all day can be expensive and watching every tick can lead to both overtrading and an increased chance of liquidating good positions, especially if one reacts to conflicting news coming out in the market.

Traders should instead find a more productive use of time to avoid the pitfalls of watching the market too close such as doing additional research or marketing with clients or focus more on money managing their positions.

Pay attention to how the market responds to news (or conflicting news) on a longer time frame basis instead of reacting immediately (unless you are an intra-day trader).

A counter-to-anticipated response to market news may be more meaningful than the news item itself. For example, you may expect to lose money after each news item, and yet the market did not move against you.

The inability of the market to respond to the news as confirmation of in the face of bad news means the market is likely to scale longer term and vice-versa.

Watch the close of the market instead of violent intra-day moves. If you are a longer-term trader, you could use the weekly confirmation instead of reacting to the daily news.

In any case, whether you are on the right or wrong side of the news or position in the market, do no make trading decisions based on where you bought (or sold) a stock.

The market doesn’t care where you entered your position. Common traders typically refuse to liquidate their position despite the stock price reversing and erasing all their losses to the extent that a very profitable position could turn into a huge loss in the end.

Do not be stubborn in such a circumstance especially in times of euphoria or hysteria in the market as the herd mentality will overrun your positions regardless of how well you believe your analysis is towards your trade.

In fact, to avoid trading based on emotions such as those generated by conflicting news or research comments by analysts in the market, elite traders follow rules-based system or a combination of human intelligence and rules-based system to manifest success.

We personally combine our fundamental skills with machine ability so as to get the get the best of both human and machine capability. Yet we acknowledge with further new explosive technological advances like artificial intelligence and quantum computing, and having seen the power of our own proprietary Master Algorithm, the world of the machine in trading looks forever more tempting.
You can read more about the mPower Algorithm and mPower Trading methodologies and see how we use human intelligence and dynamic mathematical algorithms to navigate the market.

The Master Algorithm uses sophisticated, complex and specialised mathematical and statistical algorithm and large-scale data analytics of price, volume and volatility movements in the whole market and individual stocks to identify trading opportunities in any stocks and reap returns from their timely entry and exit in the stock price.

Hence, we are seldom affected by market euphoria, hysteria or excessive conflicting news. Our master algorithm will see all these as merely “noises” by the market or smart money in the stocks to camouflage their true price direction and we always intend to ride the true longer-term price action to make supernormal profits.

It’s just human nature that as traders, we are always greedy for above-average and supernormal performance at the least cost, time and effort involved and if machines and algorithms can help us to do this, why not?

Believe in your own trading ability and system and become confident in your human ability to manifest success.
Never be negative in trading because if you are negative, the market will take you out because you are competing with very positive energy.

We are all energy and we co-exist in harmony or disharmony, so choose your path.

We ourselves believe that big data analytics never lie and as the master algorithm analyses millions of data daily, nothing and nobody can likely hide their tracks in the market from it. You can easily see the footprints of the big players and smart money early in any moves or trends and act early to ride on them.
As elite traders, we are always eager to learn and open up our mind to new developments and technologies as the world of trading is advancing fast.

We ourselves realised long ago that we need to rely on advances in technologies and move on with the times in striving to deliver above-average performance with ease and near certainty.

The investment world globally today is ruled by quantitative analysis and algorithm trading and there may come a time when machines may do all the work. They already do in many areas in trading.

Use whatever trading system you believe yourself in but most importantly, trust yourself to have the massive power and the ability to succeed in trading.

Your trading mind and skill is like a parachute, which is best used when OPEN.

Regardless of the market conditions whether a recovery or storm is underway, there are always massive opportunities for the elites who trade with knowledge and confidence.

Ignore the negatives and stay positive and thrive and trade without the emotions.

We always look forward to network with you and fellow elite traders in the market and prosper together.

Network with us and other fellow elite traders at mPower Algorithm and mPower Trading or see us at Elite Education and Training.