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Right (and Wrong) Ways to Handle Changing Financial Markets

By Rob on September 25, 2015

Reading Time: 4 minutes

You know how they say that change is often the only constant in life, and indeed, in the financial markets? Well, as it happens, I’m adapting to some sweeping (although very positive) changes in my personal life right now, and if that’s taught me anything, it’s this:

I hate change. I dread it, in fact, and in my life outside the financial markets at least, I’m surprisingly inept at coping with it!

When trading the markets, though, it’s traditionally a different story—and quite fortunately for me, it would seem—since trading requires you to block and even outwardly defy certain natural, human instincts…like how to cope with change, for example.

Perhaps needless to say, I’ve become pretty fascinated with this of late, and naturally, I thought I’d share it with all of you today. So let’s examine how each of us may tend to deal with change in real life, and if that has any bearing—be it positive or negative—on our endeavours within the financial markets.

How Some—Myself Included—Handle Change in Real Life…

Changing Financial Markets Traders come in all sorts, of course, but I’d venture to say that most tend to be analytical in nature and like regiment and structure, since that helps promote discipline and strict adherence to the strategy at hand. I certainly fall into that category in real life as well, and that can make it harder to adapt to any changes or things that lie outside the normal “comfort zone.” With it, I’m never one for trying new foods, wouldn’t want to live outside my “hometown,” and feel most comfortable trading only when it’s in my home office…and that’s just to name a few of my “quirks!”

In a way, it’s funny, because it’s the same qualities that often promote trading success—things like conservativeness, careful risk aversion, and an unwavering commitment to repetition—often produce unwanted results whenever we face changes outside the financial markets. Those things include:

Resistance to change – Do you ever oppose change or try to prevent it simply on the basis that something is new and perhaps unfamiliar?

Fear & Emotional Response – Do you react emotionally or behave out of character when change is at hand? (As it happens, I do.) And, even if you ultimately give in to change, do you do it with trepidation, and lack confidence and conviction until the new item becomes routine or is somehow proven?

“Analysis Paralysis” – Maybe worst of all, is change enough to stop you in your tracks? Do you freeze or become bogged down, finding it hard to take any action when faced with what you perceive to be a major or important change?

…and Why That Doesn’t Work in the Financial Markets

In the financial markets, traders aren’t as quick to resist change. In fact, it’s often quite the opposite, and we run into trouble mostly when we’re too quick to change markets or methodologies in response to one or a couple losing trades. Each day, it seems, in the news and financial media, there’s some hot, new trade set-up, or an asset that’s the next “sure thing,” and while trying to get ahead, traders are all-too-quick to pile in, even if it means breaking their rules for successful trading and entry.

The financial markets are constantly changing, though, and at least to a certain degree, traders are required to change—or at least to adapt—in order to keep pace, although I can’t emphasize enough that it doesn’t mean switching wildly between markets and unproven strategies. Instead, here are some of the most common changes that impact the financial markets and those who trade them:

New technology: Traders are always allowed to evaluate the latest broker platforms, analysis tools and indicators, and charting software, and make informed, objective decisions about whether or not to use them, much the same way we would when considering a new investment or trade idea.

New products/assets: We discussed recently how deciding what to trade is just as important as deciding how to trade. With that, traders can always consider new markets and currency pairs, but should do so only on their own merits and based on how these alternate assets fit within the structure of their own, existing trading strategy.

Changing market conditions: News and volatility, volume, seasonal cycles, and institutional interests are only a few of the conditions that can change and impact how we trade world equity and currency markets. Some traders even have distinct set-ups and/or strategies for trading trending and range-bound conditions, and that—rather than a total overhaul—may be just fine for adapting to changes in the financial markets.

See related: How Many Trade Set-ups Do You Really Need?

Conclusion

For traders, it’s often easy to think “The grass is greener” elsewhere, and that changing to some other market, methodology, or asset would solve whatever problems they think they have right then. That feeling becomes especially prevalent in down markets, or whenever clever marketing messages show stellar backtested results over the last number of years. Realistically, though, change isn’t always a trader’s friend, although being rigid and averse to change isn’t a good solution, either.

Recent life changes have really tested my limits, and made me consider change in a way I hadn’t before. I realized that adaptability isn’t a strong suit of mine, but objectivity, discipline, and risk aversion are, and so I rely on those strengths to achieve success, both in the financial markets and in my life outside of them. In closing, I ask you to consider your own strong suits, and whether you’re truly using them to their fullest when it comes to your trading?