The
Market Behavior
To
make money in the trading game you have to consistently
buy low and sell high; to do this the you must make judgments
concerning the direction in which the market is headed.
It's common for people to think of a single entity when
they think of the market, but there isn't really a well-defined
common meaning for the market in economic terms. The many
indexes that make up the different components of the market
go up and down independently of one another. History has
shown time and again that the majority of the public are
highly susceptible to trends, where a particular investment
might enjoy huge popularity for a brief period. It's price
will soar, and despite history's lessons the majority of
the public will often follow the trend by investing in it,
assuming the price will rise indefinitely. Inevitably, the
trend wears off and the bottom falls out of the market,
leaving many facing huge losses, while the few that got
out while the price was still soaring made profits.
The
key to making money in any market is to understand the market
crowd, or the average behavior of the individuals who hold
stock in a given market. You don't want to follow the market
you want to lead it by selling before the price drops, or
buying before the price rises.
When
you don't have faith in yourself, in your decisions, and
in your strengths, you are more likely to make faulty executions,
ignore your trading plan, and practice poor risk management.
Any one of these weaknesses can clean out your cash balance.
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