Mindset has an immeasurable impact on the success or failure of a trader’s time in the market. Fears created by sources such as the news and world events, along with market and economic commentators, can have undue influence on a trader’s psychology that ultimately causes them to act on biases or emotions.
When the market is going through periods of weakness and participants are fearful, it is very easy to follow the pessimism and avoid taking positions, even when quality stocks are presenting opportunities. Traders become focused on fears of a recession, inflationary concerns, interest rates, and even wars. As a result, they sit on the sidelines and risk foregoing the opportunity for significant profits.
Time and time again, stocks that are displaying signs of strength compared to the broader market during market corrections are overlooked. These same stocks are the first to explode higher when conditions improve.
This is why it is so important for traders and investors to maintain the correct mindset in order to be ready to identify and react to these ever-present opportunities. And while no position is guaranteed from failure, by staying focused on the quality stocks that are holding up better than the rest, traders can prepare for better times when experiencing difficult markets.
There is little doubt the current environment is one of the most difficult traders will need to contend with. It is volatile and being impacted by news-driven cycles on a multitude of factors across the globe. Yet by making sure risk levels and personal tolerances are maintained to prevent drawdowns from getting too big and by staying focused on recognizing quality opportunities, traders can give themselves the best chance of catching the significant winners.