“I just wish ‘something’ would happen,” has been a familiar refrain from traders lately. Whether it’s some soothing words from the Fed or a trade deal between the US and China, people are nervous. Unfortunately, trading on hope is not the best strategy.
With that said, the impulse to be hopeful is human nature. And given the circumstances, it’s understandable. Market indices are hovering near the flat line (mostly) for 2018. Many stock groups are down 20% or more. While some are saying “it’s a bear market”, other are saying “it’s only a modest correction off the highs”.
Technically that is true, but markets cannot go up when only a few stocks are leading the way. Eventually, the weight of poor technicals will push indices down.
Trading on hope can be dangerous
When you are fixated on a result but stymied on a price/time basis, hope becomes a dangerous four-letter word.
Hope is contingent upon other factors happening in your favor, so you become a cheerleader of sorts, hoping things will turn around. This is a very frustrating position to be in. Eventually, emotions take over. You may begin to doubt yourself. Instead of following the lead of the markets, you get get angry when the markets don’t follow your lead. This becomes a downhill spiral, and it’s one that is very hard to recover from (believe me – I’ve been there!).
Take a look at the current conditions. The markets have been volatile, which means uncertainty has entered the equation. Markets hate uncertainty, and with gains on the table, the big money has moved to the sidelines. In the past, dip buyers have swooped in to pick up the pieces. Not this time.
Pay attention to the market action. Stop trading on hope. Stop wishing for a certain outcome. When money is on the line and volatility is elevated, tread carefully.