The Psychology of Dealing With Choppy Markets

Stocks have traded in a volatile range lately, with significant moves frequently reversed. This has proven challenging for those looking for trends.

If we think of markets as auction processes, we can identify volatile and non-volatile markets based upon the amount of participation in the marketplace. We can also identify trending and non-trending markets based upon the relative balance of buyers and sellers.

Our job is to read the auction process and adapt to the conditions before us. We are in a very different environment than several months ago. When we have a volatile range, we have large participants active as both buyers and sellers. The move in rates and uncertainty over central bank direction has created a different auction process.

How do we talk to ourselves about market conditions? Do we frame the situation as a challenge and as a problem to be solved, or do we frame ourselves as victims of unknowable market forces and passively hope that things will change in our favor?

Victim self-talk is the surest way of disabling ourselves when opportunities arise. How we frame situations determines how we respond to them...and how we will be prepared for the future.

Further Reading: Questions to Ask About Your Trading Psychology
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