The bears endured another day of emotional damage. The huge move up in the markets on Thursday, November 10, 2022, signals something we should all recognize about current market psychology. That “something” should be heartening for any bears left standing. What is that something? Fear. Now, understand that there are different types of fear when we are talking about market psychology. The explosive move to the upside of the markets to “less bad” CPI numbers indicates fear of missing out (FOMO). This is a useful bit of knowledge. It has been said that “wisdom is knowledge, rightly applied” so let’s see what we can do to make a difference next time.
I like lists, so here is a short one that examines what we are seeing regarding FOMO and market movement, as well as some things you can do to exercise more control.
- You must understand the real reason for the rally. When the markets are moving up as they have been during the most recent bear market rally, and continue to blast higher on poor data, the simple truth is capitulation has not occurred. Mom and Pop Fourohonekay are still investing because they are listening to the “gurus” on CNBC. Their company provided investment advisors are still shilling “dollar cost averaging.” They have been conditioned by the FED and the Banksters to completely forget what a real market decline is, or like most Millennials, have never actually experienced one. I cannot count the times people have said to me, “markets tend to trend up over the long term, so I will just leave the money in until it comes back. After all, I’m just buying more shares at a lower price.”
- You can see fear and greed in the charts, or stated another way, Fear of Loss, and FOMO. Any number of technical analysis methods work in identifying market peaks and troughs. You have seen many of them right here in the comment section and probably gravitate to one or more. Regardless of which one you end up using, you are always looking for those tops and bottoms. Right? Very few, if any, of the methods are indicating a real bottom is in. None that I have seen are indicating people are fearful of losing money.
- Ignoring the technical analysis of the markets, the FOMO rally is telling us that right now markets are nowhere near a meaningful bottom. This is great news for bears! Rejoice in the fact that you get to short at much more reasonable prices. (Editor’s note: I’m having trouble rejoicing at the moment)
- You can use this knowledge to your advantage if you are only willing to play the game on your terms. Set up your methods, test them, and most importantly, follow them.
- Finally, there is another fear that you can use to your advantage. The Fear of Loss mentioned above. Successful investors and traders have a healthy fear of losing money. Use that fear in the development of your methods. If your first goal is to not lose money, your next goals will build upon that in a way that promotes a methodical approach to investing and trading. A method that regulates your healthy fear and channels it to your advantage. If you find yourself dreading or worrying, you have not developed (or are not following) a proper risk method. Go back and examine what would make you comfortable in the trade. Come to the realization and knowledge that you will lose in some trades and be able to accept that loss without it affecting your mental attitude and stress levels.
Fear can be a good thing. You can use other people’s fears to help position your trades. When you learn to recognize your own fears in investing, you can add that tool to your arsenal and use it to your advantage. Harness your own fears and channel them into working for you instead of against you. You can’t win them all, but you can lessen your emotional damage.
