Isn’t it amazing how one not-so-measly global financial crisis can change everything? Even today, years later, all the news headlines about crashes and calamity in the markets go to show that fears about the worst-case scenario just never truly fade…and plenty of traders battle that, too!
So be honest, do you sometimes look beyond the pattern and set-up at hand and worry about “invisible” market forces or another financial crisis? Do you read all the rotating news headlines about booms and bubbles and which currency or asset class may be the next “shoe to drop?” And most of all, are you are among the millions who—perhaps even unknowingly—let those lingering fears about past financial crisis impact their modern-day trading?
The financial crisis was an immediate game changer, shredding investor wealth and forever changing the prevailing views about the financial markets. Indeed, in this modern era, sudden and severe losses are possible at the hands of such things as “flash crashes” or “Black swan events,” because of high-frequency trading, or even due to government or central bank intervention in the equity and/or currency markets.
Those items once weren’t even part of our vocabulary, but are now common risk factors traders and investors worry about with each passing day…but here’s the problem with that:
Despite its massive scope and seriousness, the financial crisis ultimately gave rise to one of the strongest bull markets of our generation, yet it’s a bull market that many failed to fully capture—and some have missed altogether—due to lingering fears.
Even more recently, unwitting forex traders sustained very swift, and in some cases, unlimited losses when the Swiss National Bank (SNB) removed a long-standing peg on the Swiss franc (CHF). Havoc quickly ensued in the currency markets, and while it served as a real awakening about the dangers of currency intervention—and especially about trading on margin—neither that financial crisis, nor any that came before it, ever invalidated the use of a proven and risk-minded trading strategy.
This year, traditionally quiet August proved to be much different, with markets tanking on China-related fears and volatility spiking at a record pace. Suddenly, we’re seeing wild intraday price swings that are indeed reminiscent of the financial crisis, and the question “Have the markets changed?” is coming up time and again. Perhaps the better question is this, though: “Have you changed because of the markets?”
Those trading in fear of some worst-case scenario are the ones most likely to miss quality trade set-ups, a fate we often regret even more over the long term than many of the losing trades we’ll inevitably sustain along the way. So, to stay more grounded in the present and maintain the poise and confidence needed to take trades amid heightened volatility, work to promote more of the following:
Acceptance: Humans aren’t predisposed to forgetting about painful outcomes, and that’s a big reason why we’re still so fixated on the financial crisis to begin with. But sometimes simply identifying and accepting that fear is still there is an excellent first step, especially when that can be followed by decisive action to overcome it and properly execute trades when your strategy calls for it.
Focus: Fear makes traders fixate on the unknown, or try to predict the future, when all the while what matters most is the set-up at hand. Frankly, nothing fuels this tendency more than the news and financial media, and that’s a good reason why, if you’re struggling to take qualifying trades in these volatile markets, you should limit your news intake, if not ignore the news completely.
Conviction: Take time to reset negative thought patterns, whether it’s when you start trading each day, or when fears begin to pile up intraday. Reinforce your ongoing commitment to trading your strategy, write down your pledge to trade with conviction so it’s visible at all times, and above all else, be sure that you either trade with confidence and clarity, or for the time being, do not trade at all.
See related: What’s on Your Pre-Trade Checklist?
The damage done by the financial crisis has left an indelible mark on traders, and it’s still easy to see it today. I mean, not to make light of China’s economic struggles, or the volatile price swings seen across world markets of late, but so quickly, panic ensued and all the headlines warned of financial crisis, like it’s a scenario that’s perpetually swirling on the horizon, just waiting for a simple catalyst to strike.
Indeed, we’re now living and trading in a modern era, the financial crisis era of the markets. Risk factors are always looming, but for many, the biggest obstacle they’ll face is their own lingering fear, and that’s the message we want to convey here today. So to trade well in these, or any conditions, focus on what’s happening on the screens right now, and don’t let your own emotional scars left by the financial crisis interfere in your trading endeavours.