Here is an article about cycles of market emotions by Mike North from First Ag Capitol. I liked the article as he explains the emotional cycles of our trading decisions. Read on and then decide which state are we in at the moment?
For every market there is a chart. The chart defines that market’s price over time. However, what makes up a price? What influences its movements?
Some will say supply and demand. Others will suggest that the volatility that comes as a function of speculative money flow and the war that wages between fundamentalists and technicians have an influence. Whatever flavor you choose, one thing is certain … it moves.
What is more interesting is what happens as it moves. As prices continue to move and adjust, people will be monitoring actual value relative to their expectations of the future.
It is no wonder that when prices move lower, the world does not seem fair. Anxiety, denial and fear grip the producer as he watches opportunity pass. Desperation and panic set in as they watch their cash flows take on darker shades of red. People begin to realize that they have yet again missed an opportunity. Statements like “If only I would have …” or “I could have …” or “I knew that I should have …” are tossed around frequently. The “woulda, coulda, shoulda’s” create a sense of self-defeat that makes one feel like waving the white flag of surrender. Hopelessness and depression define the human psyche. How could it get any worse?
But, alas, it is over! The market begins to rebound. Hope bubbles until optimism boils over. This new brighter outlook breeds an excitement that grows to a stage of euphoria that people seldom experience. Producers start to feel like they can fly. Times are good. The market begins its move lower and we repeat the cycle once more.
What frustrates me is hearing of how this cycle leads to bad decision-making. Over and over, people allow the desperation of bad times to temper their activity during improving times.People spend so much time charting price that they often forget about the emotions they experienced as those prices unfolded. The chart of your emotion should be watched much closer than the price chart your eyes are often glued on. If people would write down how they felt and what decisions they made as a result of that emotional response to price, their risk management success would move to a much higher plane.
Can we agree on something? Let’s agree to not allow this emotional roller coaster to dictate our reaction to price opportunity. As you navigate your marketing plan, please do this – chart yourself.As you track your emotions, spend some time thinking of the past. What were your best years emotionally? What were your worst? It is interesting that as I ask this question in crowds, I often find that their emotions very closely follow price.
People often suggest we would be better off with more stable prices that move little and seldom change. They are not suggesting this because it would do their business better. The root of that comment comes from a desire to get off of the emotional roller coaster. I grant you that wish. However, that does not mean that something will magically appear and your life will forever change. I challenge you to understand you.
Price cycles create more emotional predictability than market certainty. If you can pattern yourself, you can corner the market of “you”. Doing so will help you more clearly see opportunity through the lens of reality. I bid you well.
