This quick fall of the equity markets had again and again the same effect on retail traders. I am in this business since 1994 so that I have my second decade anniversary now and I am always detecting the same behaviour. Phase one: equity markets are accumulating, volumes are high, stocks start to make rounded price formations at the bottom of the previous descent. You start writing at the benefit of your readers that a possible bull market is coming. Nobody believes you. Why the equity markets should go up in the middle of a violent turmoil or just afterwards ? But stock prices then start to climb. Your readers do not believe it, they think “let’s see what happens with this buy tips that Tomasini gave us”. Then stocks explode on the upside and your readers eventually convince themselves that the magic moment of a bull market has come and they buy. Obviously the market is already too high and their purchases end up shortly later on with a stop loss. Market starts to decline, but readers still wait to see what happens. When market collapses they are full of stocks like eggs and since they are not accustomed to sell with a loss they simply get nervous, depressed, pissed off and they do not even watch the screen and price updates. They keep their beloved stocks with plummeting prices. On your side the psychological sufferance is reversed: when prices start to go up after the base you feel to be not followed and loved by your customers. And this is a really hurting feeling for an advisor. Then when all the readers subscribe the newsletter you are happy for the money you are making both with the newsletter and with the markets but you know that in a few months problems will arise. When stop losses start to delude customers that enthusiastically subscribed at the top of the market you already know that dark days are in front of you. During the market collapse since readers are full of stocks purchased on the peak of the equity markets they are not eager to renovate the subscription or to subscribe from scratch. Then the cycle after some months or years start again: prices make a base from which they start to rise, you write to purchase stocks, but since all the readers are still full of stocks from the previous disaster then … bla bla bla. This happens to me again and again since 1994 and it gives you the idea on how difficult could be both follow an advisor but also, let’s be frank, to be an advisor.
Emilio Tomasini is Chief Editor of the Italian edition of TRADERS’ MAGAZINE (www.traders-mag.it), the leading monthly publication in Europe for trading and investment, and since 1999 he organizes the TRADERS’ CUP the most important real money European trading competition (www.traders-cup.it). His personal weekly free newsletter L’Indipendente di Borsa (www.indipendentediborsa.it) is one of the most reputable Italian financial media and counts more than 100.000 readers. His website in English is www.emiliotomasini.com