Matching Your Mood to the Mood of the Market

The first and simplest emotion which we discover in the human mind, is curiosity.
- Edmund Burke -

Matching Your Mood to the Mood of the Market

It is Tuesday morning. Tommy woke up early and had a good run. He drank four cups of coffee before the open to get psyched up. He is energized and ready to trade the markets. He looks forward to a winning day. But how will he do? At first glance, one might think that Tommy has a winning mental edge today. There's no one single, proper way to trade, however. What's a good day for some people may not be a good day for others. Take Tommy, for example. When he is in a great mood, he is a little overconfident. He can't wait to get started, and in his zeal, he may take trades he should have stayed away from. Today the markets are generally bullish. (As you may recall, the Dow, NASDAQ, and S&P 500 were all up last Tuesday.) But what will happen in the long run? Will the market optimism last, or is Tommy jumping in too soon? He may have bought stocks at a top, and when he tries to sell off his positions in a few days, he may not find enough buyers. On this particular day, Tommy may allow his optimistic mood to get the better of him. Today is a day when Tommy would be wise to trade with caution or just stand aside.
When trading the markets, it's vital to have a good match between your personal mood, your trading style, and the mood of the markets. Again, there is no one right way to trade. It's a matter of personal preference, but a critical issue is whether your current mood matches the market mood. People differ in the kinds of personal moods that are optimal for trading. Ideally, you want to trade in the zone. You want to be alert, focused, and ready for the challenge the markets place before you. Obviously, if you are extremely tired or depressed, you will not be alert. You'll be easily distracted and annoyed by minor setbacks. So being rested, relaxed and ready for the action is essential for profitable trading. But how alert do you need to be? Many profitable traders, for example, develop detailed trading plans during off hours and merely execute (rather then re-think) their plans during the trading day. Some trading experts argue that one doesn't want to be too alert. They argue that if you are too mentally active, you may unnecessarily question your trading plan rather than flawlessly execute it. The ideal approach is to merely follow your plan and execute it without much thought, sort of how an assembly line worker might methodically get the job done. A sense of alert indifference is the preferred mode of thinking for some traders. While in this indifferent state of mind, everything just seems to click and they enjoy themselves. Other traders, in contrast, feel they need to be extremely energized while trading. They need energy in order to seek out trading opportunities during the trading day. They need a vast supply of energy to scan through charts, to discover what is happening, and to take action. Whatever mood you trade in, however, it must suit your trading style. Some people can't trade in a bearish market no matter what their mood. That's all right. Again, there is no one right to trade. Some people like bull markets while others like bear markets. The main thing you need to do is trade in the market mood you prefer and make sure that your personal mood is conducive to your style of trading. The better the match between your personal mood and the current market mood, the more profitable you will trade.