How to Stay Clear of a Trading Yo-Yo

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How to Stay Clear of a Trading Yo-Yo?

Before we start discussing all the strategies to avoid getting stuck in a trading yo-yo, it would be reasonable to get done with defining it firstly. You may understand a trading yo-yo as simply earning consistent profits from binary options or Forex trade markets for a limited duration of time.

What is it all about?

The ‘yo-yo’ cycle functions as a deceptive and maladaptive loop; so, once the profit starts coming in, the trader is more likely to become overconfident and reckless. But, what does this mean in a trading scenario? Well, the more overconfident you get (as a trader), the less time you spend on making critical decisions during performing a specific action; this ultimately results in a swift downward spiral. Consequently, the trader faces recurrent loss because of careless decision making or weak strategy.

This trade-yo-yo happens to be a rather vicious cycle and mostly, the traders would make a great deal of effort to get back on track and start executing the trading activities carefully. But the old habits are often hard to let go; and most traders would easily slip back into the same patterns. The traders regain the confidence, profits and may become overconfident again, thus pressing a reverse for everything.

This principle of repeated loops of upward and downward trends is something that every trader has experienced, and it seems like an unavoidable fate. However, with a little bit of vigilance and perseverance, it can be avoided easily. This principle is prevalent in various routine activities that may include following a diet plan or training for something or building a social network and maintaining it, etc. The common error that traders, usually, commit is that they let the immediate results take over their decision-making capacity and it works both ways. Whether you are making big profits or suffering a loss; trade sector is all about staying in control of your nerves. Below are few tips that may help you avoid this vicious trap of maladaptive trade habits.

1. Stay Away from Recency Bias

In simple terms, the fact that traders tend to get influenced by the results of very recent trades or events, while ignoring all the previous trade-history is called recency bias. Now, this error is one of the most critical, because the past trade information that the trader often ignores should be regarded as significant because it can offer insights and improvement strategies.

The recency bias becomes a chronic problem if you are someone who has a habit of staying fixated on the most recent events of either losing or winning a trade. In order to keep a check on yourself, you may consider maintaining a trade journal, devise a thorough trade plan with binary options software and just follow it, focus on the bigger goal and try to avoid emotional decision making.

2. Stay Humble & Avoid Arrogance

This seems like a tip relevant to ‘teaching good manners’, however, this is vital in trade scenario as well. In trade sector, as we discussed above, the confidence and overconfidence come all too easy and it is an active choice to stay humble and rooted to the ground. Now, this does not mean that you have to doubt your trade-plan or strategy or feel diminished; rather, you need to maintain a learner mindset so are open to learning new strategies while making required amends in your existing ones.

If a trader lets go of this humility and rationality; overconfidence takes over and the trader may go for larger sized trade options that may be against the recommendations of the trading system that he is using. This may result in a never-ending vicious loop; therefore, it is vital to have control on your emotions and staying humble (even if you are winning great profit margins consistently). The best way to do this is to simply follow the trade-plan.

3. Your Trade Account does NOT define You!

Well, it is important to come to terms with the reality of Forex or binary options market; they are trade sectors and show fluctuations as a norm. So, it is important to understand that you may not be able to keep every variable in absolute control and may not be able to make a profit. In such critical situations, you would have to detach your ‘self-worth’ from the percentage of profit that you are making. Because if you let the business fluctuations dictate, how you feel about yourself, it’s going to be quite a stressful and uncertain environment for you.

One way to keep away from this pitfall is to focus on what you have achieved in other important areas of your life; this may include hobbies, workplace or family/friends. It is always a great idea to socialize more and get involved with friends and family; this helps gain a new perspective and renews enthusiasm and energy. This conducive environment will work wonders for your trade as well.

Have you ever experienced a trade-yo-yo? Share with us your experiences in the comments below.

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    SPY – The stock market (SPY) is going up and down like a yo-yo. Understand what is happening and chart your course forward with this market commentary.

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    (Please enjoy the latest investment insights from the Reitmeister Total Return portfolio).

    Yeah…like a yo-yo. But unlike a yo-yo it’s hard to know which direction it will go next. So let that be the focus of our discussion today.

    Market Commentary

    Let’s set a baseline. My thesis and trading game plan about the Coronavirus was laid out as clearly as possible in the 3/2 RTR members only webinar. No need for me to recap or summarize. Best to just get it straight from the source by clicking the link below. Once you have those ideas firmly in place, then continue with the updated commentary further below.

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    There is no real in change the story for the Coronavirus since Monday. In fact, I would say it is getting a notch worse as the # of cases and deaths in the US continues to grow (154 today up from 124 yesterday).

    Yes, it’s a small number. And yet, how many conversations have you had about Coronavirus with friends, family, co-workers and EVEN strangers. The answer is quite a few conversations. And that’s the point…it’s on everyone’s mind.

    And some people are taking it a step further. Like canceling trips to limit their risk. Or start to stockpile food and water in their house. And yes, some people are even starting to walk around in public with face masks (especially in large urban centers).

    This is happening while there are ONLY 154 cases in the US out of 331,000,000 citizens. Yes, its infinitesimal at this stage and yet it’s still the main topic of conversation. And starting to change habits.

    So now imagine how ugly things get when we have 500 cases…1,000 cases…or God forbid, 80,000 cases like China.

    Please note that I am a cool customer with this stuff. I have zero fear of contracting this stuff. But it’s not about me or you. It really only takes a small % of the population to flip their lid to change spending habits enough that harms the economy creating the next recession (with bear market in tow).

    So don’t get caught up with the yo-yo action of the market. Just like the Monday rally was hollow leading to Tuesdays sell off. Likely that will be the same with Wednesday’s seemingly impressive rally.

    All these rallies are subject to revision given what happens next with the Coronavirus.

    (read the above line one more time so it sinks in…and one more time for good measure).

    Reity, how about the Fed cutting rates. Isn’t that a good thing?

    Let’s cover the No part first. Notice how after the initial 3% spike in stock prices they tumbled a full 5% from that peak into the finish line.

    Because with rates already at historic lows, then why would the Fed need to do ANYTHING.

    And the answer is that they are scared of what comes next. And after 10 minutes investors smelt the fear leading to the big sell off.

    The good news is the same topic we have talked about numerous times in this commentary. That low bond rates makes stocks all the more attractive.

    However, that is ONLY true if we don’t slide into a recession. Because…

    Recession = lower earnings = lower dividend payments = lower stock prices

    So yes, lower rates makes stocks all the more attractive AS LONG AS there is no recession allowing earnings and dividend payments to stay aloft making them more attractive than bonds.

    That leaves us right where we started…it’s all about the Coronavirus and how it evolves from here.

    If it gets under control, then we get back to 100% long with a focus on buying some of the most beat up groups that will rebound the most (energy, travel/leisure, restaurants, China growth stocks etc).

    If the virus continues on a more destructive path, then the odds of recession go up and the value of stocks goes down.

    Our portfolio is properly constructed for where we stand now and ready to roll more bullish or bearish as needed.

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    The rest of the commentary is reserved for subscribers to the Reitmeister Total Return portfolio.

    Right now Steve Reitmeister is only 50% long the stock market given the concerns about the Coronavirus. Beyond a more conservative mix of stocks Steve also has 2 inverse ETF positions that are soaring as the market tanks. Plus 23% cash for good measure. This has helped customers weather the storm quite comfortably the last couple weeks. And he is prepared to get more bullish or bearish as needed.

    If you want to see all 11 recommendations, plus future trades and commentary, then just start a 30 day trial. Click the link below to learn more.

    SPY shares were trading at $301.91 per share on Thursday afternoon, down $10.95 (-3.50%). Year-to-date, SPY has declined -6.20%, versus a -6.20% rise in the benchmark S&P 500 index during the same period.

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