At The Close by John McKinnon
Do you know how you will react under specific circumstances? Do your emotions keep getting in the way?
Sometimes, the market is described as a living organism with a personality all its own. In an effort to understand this elusive quality, many traders rely on technical indicators to monitor and predict the state of the market. Others utilize models for measuring the microfundamentals of individual stocks or the macroaspects of economic trends. Experienced traders usually develop their own customized mix of indicators and/or fundamentals that works for them.
However, these same traders will often tell you that the indicators donít always do what theyíre supposed to do; that is, they donít always cooperate.
Despite our best efforts in calculating complex patterns, we still refer to market activity mainly in emotional terms:
ē Abc stock soared on new product sales: Euphoria
ē Investors stampeded for the exits on Xyzís dismal earnings projection: Panic
ē PQR hit it out of the park with its new executive appointment: Cheering crowds; power; a winner!
ē The hedge funds that shorted were crushed and shredded when the stock unexpectedly reversed: Annihilation, uncertainty, fear
The news media makes an attempt to put a brave face on the marketís behavior ó a reason behind it. To hedge their bets, some Internet sites actually have two stories ready for print, one if itís an up day, the other if itís down. More often than not, the behavior is inexplicable.