Today is a perfect example. The market started out on a down note. What it finishes at close has nothing to do with this article, for we all know the market can do anything that anytime. What this article is about is seeing what is happening or is it?
Is it what it is or not? Confused?
Good, read on. When the market opened on a down note the prognosticators deemed it as result of the threat of war. Really? Does anyone really think we are on the cusp of a war with Iran? You know as well as I do that things just do not happen that quickly. This is not like a bar room fight that breaks out over a spilled drink. No one is under the influence here and everyone realizes the severity of entering a war. So why is the market starting lower. Simply, it is about money and will always be about money. So maybe it is the prognosticators that are confused and not you.
If it costs a company more to make their products, then it will result in lower profit. Any investor knows that a company needs to make profit before it is truly a good long term investment. International tensions of any kind generally result in an increase in oil prices. This world is geared to oil, it is what fuels everything from locomotives to plastic bags. When oil prices go up, that effects profits and also the desirability for owning stocks. People tend to react too quickly. Fear is a really strong motivator and fear causes selling and selling causes the market to drop. So what to do?
Back to the question,
“Is it what it is or not?”, that is the question you should be asking yourself. Determine in your own mind what the driving force behind market change is. If you feel like it is temporary, then consider the market a good place to seek entries for the longer term trade. Else, if you conclude it is here to stay then consider taking short positions to profit from the fall. These things are obvious, but do you stop and think about what is really happening or do you react to the emotion of the moment?
Take note, the giants in the investment world, they are not trading blips on the charts. They are investing in the reality of where the market might be really be going. You trade futures you say and it does not apply to you. Sure it does, just on a shorter time frame. Always think sustainability. No matter if it is for year, month, week, day, hour or minute we need to think about the sustainability of the momentum.
We use a lot of technicals on our website and in our trading, but when you stop thinking about long term effects, you are only getting a part of the picture. Finance majors are well trained at looking at the historical and future long term effects and I often site their lack of trading knowledge. Well, the inverse is just as true, a trader also needs to have some knowledge of fundamentals. He does need that of those finance majors, but he does need a grasp of what fundamentals are and how the events in the world affect those fundamentals and how fundamentals affect stock price and desirability.
Think, reason, does it make sense? You might be wrong, but you wont be caught lacking because you did not consider “what it is or is it”?
See you on the other side,