Managing Control and Uncertainty-The Psychological Side of Trading

Each of us handles uncertainty in a different way. There are those who do not mind the unknown. They are willing to accept what may come and may even feel powerless to stop it. For this type of person, going with the flow no mater how turbulent it may become seems like the best course of action. On the other hand, there is the opposite personality. The individual who must have a hand in guiding all outcomes that affects them. They cannot stand the thought of losing control and experience negative emotions when uncertainty appears. This directly influences how a person handles stock market trading.

The market is full of unknowns and uncertainty. Even a safe bet can turn sour sometimes.  Interest rates may increase, predictions may not be in favor of your stock, or other factors may suddenly shift and go in an entirely unexpected direction. How will you handle this environment?

It is vital that all traders adopt a middle of the road approach in these situations. Find common ground between the two personality types mentioned earlier. That means being capable to accept the things you cannot control, but remaining active in trying to work towards a positive outcome. Stay well informed and base your decisions on sound information and expert advice. In the meantime, accept the fact that sometimes you are going to lose and that is just the nature of the stock market game.

Gather Knowledge and Use It!

A good habit to start is gathering knowledge and information. Follow earnings announcements and economic reports to monitor the financial climate. Pay attention to when these reports are released because they can influence the direction of stocks.  Use this to your advantage and trade based on the information you gather. Additional factors include unemployment statistics and consumer spending habits.  When media outlets reveal this information, it could further impact the direction of our stock. Some conservative investors prefer to wait until they have seen the reports to make decisions about trades.

Make sure you review earnings statements as well. These can make your stock rise or fall significantly. A common practice is to avoid open positions when an earnings statement is expected. Large companies in an industry can have a tremendous impact on stock related to that industry, which could impact you even if you do not own stock in that specific company.

Interest rates and options expiration dates are another stock market influencer that can come into play.  This may sound like a lot of research, but most of this information is readily available if you are willing to seek it out. It pays to stay on top of recent developments and changes in the stock market. Many things can influence your trading habits. By staying aware of the ebb and flow of the market, you can take responsibility for your financial situation and begin to make better decisions while handling uncertainty in a healthy manner.

 

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