We’ve seen one of the largest drops in the DJIA in history over the past week. Many people are fearful. It’s hard to feel optimistic when people are using the word “depression” to talk about the economy. But what does this mean for the markets? During the 1987 crash, James Baker was Secretary of the Treasury. On This Week, he commented that the current economic crisis is more complicated than in 1987 due to the credit crunch in the banking industry, which was not present in 1987. Former Secretary of the Treasury Larry Summers commented that bad loans were made out of greed, but right now, fear is the prevailing sentiment. The question to ask as a trader is, how can I capitalize on fear?
One person’s source of fear and stress is another person’s opportunity when trading. The market has shown large moves, and if you were on the right side of the trade, you profited. There are two choices you can make: You can decide to trade with a sense of fear and feel stressed out, or calm down and enter the zone.
Uncertainty can mean prosperity in the markets for the short-term trader with the right intuition and skills. It is dangerous for some traders who don’t have knowledge, skills and financial resources, but an exciting time for others. The key to success is to enter the zone rather than panic.
How do you achieve an optimal state of mind? First, you must put aside fear. Existential psychotherapists point out that people experience fear and anxiety when they think about, and regret, their past mistakes, or when they worry about an uncertain future. The antidote: Experience the moment. Focus on the process of living in the here-and-now. Seasoned traders describe a similar experience when they enter "the zone." There's a point where a trader isn't worried about past mistakes or future profits. All one's attention and energy are focused on the current trade. When they are in this optimal mental state, they achieve a higher level of existence. They are more in touch with their instincts. They see the markets and their trades more clearly, and are intensely aware of their feelings, sensibilities, and judgments. They can review a multitude of details, and can effortlessly identify the key factors that are likely to drive market action. Moving into this higher level of awareness during a trade can greatly increase one’s chances of success. It’s useful to learn how to move into this peak performance state.
Even though it’s hard to put fears of future economic troubles out of your mind, it’s vital that you focus on the moment. Think strategically rather than emotionally. Calm down, relax, and concentrate. Don’t think about the future. Don’t put unnecessary pressure on yourself to perfect at levels that you cannot attain. Accept your limitations, look for opportunities, and react to what you see. That said, don’t feel overconfident and don’t take unnecessary risks. Fear results when people perceive that the future looks uncertain, and stress comes about when you put so much pressure on yourself that you can’t achieve your goals. When fearful and stressed out, you must lower your expectations and accept what you actually can do rather than get upset that you cannot achieve what you want. Winning traders go where the markets take them and don’t impose their will onto the markets.
If you decide to trade during these uncertain economic times, it’s vital that you protect yourself. Don’t act recklessly. Anticipate and avoid potential adverse events. It’s vital that you truly are safe. Have a backup plan, and manage risk. If you are taking big risks with money you can’t afford to lose, then you will feel naturally anxious. During these times, however, some traders act out of desperation and make bigger trades than they should and take bigger losses than they can afford. It’s vital to stay calm and focused, and avoid panicking.
These concepts sound good in theory, but how does one put these ideas into practice? It may be extremely difficult for some people to live in the moment for very long, or to stay there and completely cast aside fear without worrying about the future. One can strive to reach this state of existence for a short time, however, at least long enough to evaluate a trade and take decisive action. The first step is to monitor one’s thoughts and identify instances where one is worrying about the future and focused on a dismal view of the future. The second step is to actively try to push such thoughts out of one’s awareness. It is hard not to worry about the future: “I wonder if I will anticipate the markets accurately or will I see loss after loss?” After one is aware of the kinds of thoughts that indicate one is worrying about the future, such thoughts can be pushed aside temporarily. It may be necessary to yell “stop” or think, “Don’t think about that right now; I can consider these issues later, after I’m done evaluating my trade.” Now, using these strategies won’t put you in that ideal mental state where you are completely in the moment, but it will help you get to a mental state that is close to the ideal.
The best traders are not self-conscious about their mistakes. They don’t regret past mistakes or worry about the future. They live in the moment. You can also live in the moment, if you can take the current market action that stresses out the masses and trade it to your advantage.
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