TheRiskBlog

It needs time, till you can make proper market decisions. You need a good portion of experience for this and you have to know what is going on in the markets. But the problem is, that even if you are theoretically right with your interpretation of market events, you still have to remain flexible.

To be flexible in your judgement doesn’t mean that you should change your view every minute or that you should become frantic and fearful. It means that you should always have in mind, that your interpretation might not be wrong, but that more people judge in another way. And you have to accept it!
Markets are made by people, by crowds. And the crowd decides on its own. Therefore its judgement rules the markets.
“Markets are never wrong. Opinions often are.” said Jesse Livermore once.
And it is like that, you can’t fight the market, no matter how smart your calculations and anticipations are. This is no call to stop making your own thinking and interpretation, but to remain flexible in your thinking.

You can not interpret news in the same way all the time because markets and news are always ruled by the crowds decision and this decision is different everytime. It depends on the mood of the market and its participants. For example, if there are bad news in the market, then participants are in a negative mood regarding the near future (Jobless numbers, consumer spending and so on). Bad news could have a more devastating effect on the crowds behaviour, because the crowd is already frightened. And market participants fear that it could get worse. It is now likely, that we will have a downward movement because of this. But on the other hand (we saw it in 2009), if you had a longer downward movement and everything got worse for a while, good news can have a big effect in the market. The reaction could be a lot more effective than it would if the market had been in an optimistic mood for a while.  Good news in a downward market, are like life jackets thrown out to the drowning. No matter what, they will grab it.

So if you as an individual make a judgement about the market or the future of a company, believe in your own thinking, but bear in mind, that’s not you who decides where the market will go. Stay flexible.

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