BTFD is an oft used phrase but what happens when you wait for one and it finally arrives?
I talk a lot about sentiment and while it plays a very big part in how markets react it also plays a very big part in how we traders react. Around the late part of Jan 2014 stocks were testing the highs, as was USD/JPY, and in that circumstances everyone was saying, “I’m waiting for a dip to get into”. Then came that very dip. Stocks crumbled and USD/JPY fell hard, as did the crosses. So how confident did dip buyers feel at that moment when there was some fear in the market?
There will be plenty of experienced traders who would have seen this a the perfect (or nearly perfect) time to do just that and jump in but it’s the less experienced traders that I’m aiming at with this post. It’s very easy to get caught up in the moment and the herd mentality. Right at that time there was nervousness in the market and that can filter through into our decision making. Instead of seeing dips and opportunities we now see cliffs and dark scary holes.
This is where you need to take stock of the overall picture and assess whether you are really seeing the end of the trend or just another natural refresh that happens once in a while. All trends need a clear out now and again, but no one will hold a sign up to say it’s coming. If it's a refresh then jump into it. If it's a trend change then go with it or leave it alone until the picture is clearer
