Dealing With Scare Tactics

We’re in the ‘scariest’ month of the year — not only Halloween, but for markets as well – the month where crashes occur.

Much of the recent disappointment from Washington about the budget showdown and upcoming debt ceiling battle seems to put traders/investors on the defensive.  It’s not hard to see why especially if you have had a good year, and with only a few months remaining who wants to lose any ground.  Yet, should we pay attention to these signals or just dismiss them as useless?  Actually, I would say ‘do both’!

Why not take advantage of the less fortunate weaker hands who refuse to listen to the message of the markets.  We’ve seen it happen over and over again – several times this year already where markets sold down on some unfounded fear only to bounce back strong.  We call that ‘buying the dips’.  With so much interest in the markets these days we see many just following every moment, every movement tick by tick.  Every news item becomes a reason to buy or sell – even the media chimes in, believing they are driving price action just by mentioning something new.

But trends are strong and very hard to fight, further they are difficult to jump on board.  Imagine a fast moving train and trying to get on when it slows down but not slow enough.  That’s the same decision in trying to go with the market flows.  The little jolts of selling and buying offer some great areas of trading if you’re opportunistic.  Given the strong gains this year, the heavy skepticism surrounding many events and drivers (see: Fed stimulus and QE) it’s no wonder there is hesitation to jump on the trend.

The market speaks the truth, others offer opinions.  Therefore, the scare tactics used by the media, pundits, experts and analysts should mostly be ignored.  This is the noise that will get you in trouble.  Turn down the volume, focus on the trends, momentum and signals in front of you.  The market will tell you what direction to move, technical analysis is the great equalizer on the spectrum of fear and greed.   Bob Lang