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Managing Emotions and Strategies in Transitional Markets

Market Commentary/Forecast - May 28, 2024

Experienced traders know that an emotional need to always be 'doing something' in the markets can be counterproductive. Their understanding comes from eventually learning that successful trading is as much about patience and discipline as it is about knowledge and strategy. This understanding becomes especially critical when markets are no longer strongly trending but are transitioning - like now.

When a trader feels compelled to act, they are more likely to make decisions based on fleeting emotions rather than sound analysis. Fear of missing out (FOMO) and panic-driven impulsive actions then lead to poor timing and suboptimal trades.

Further, the pressure to keep finding a 'trade of the day' usually increases stress and burnout. If you haven't experienced it yet, you will. Heightened stress will impair judgment, reduce focus, and ultimately impact your returns. Such self-imposed pressure can create a vicious cycle where a poor decision leads to losses, which then increases the urge to recover quickly, leading to even worse mistakes.

Choppy and toppy markets, as we are seeing now, are typically noisy because the amplitudes of most tradable cycles are becoming temporarily less dominant. During these times, distinguishing between genuine trading opportunities and mere market noise can become frustrating if you are anxious and are trying to 'force' a trade. Moreover, the increased noise will prompt eager traders to enter or exit positions prematurely for the wrong reasons.

The good news is that if you remain patient and adjust stops on remaining long positions or hold on to cash until the next turning point, you won't be caught in an emotional whirlwind during market transitions. You will avoid unnecessary trades, and most importantly, you will preserve your capital and position yourself for the bigger moves that will be coming.

For now, June 10th is projected as the next cyclical high. Long-term cycles (Forecast charts) are still bullish, which is why we have been holding on to intermediate long position trades entered after 4/22. For safety, keep stops under the 3/5 and 4/7 crossover averages.

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