Decisions that are influenced by emotions are shaping the major risks the world faces in 2017”- World Economic Forum Global Risk Report

 

How risky is investing in 2017 going to be? To what extent will our emotions influence our investment decisions? Can we even make sound investment decisions without involving our emotions? What is emotional influence and what are the economic risks associated with investing?

 

We are more than halfway through January, and if 2017 is going to be anything along the lines of 2016, we are in for a tough year. The geopolitical and socio-economic environment in 2016 played havoc with the global economy, never mind peoples emotions.

 

Emily Swanson and Verena Dobnik note that emotionally wrenching politics, foreign conflicts and shootings at home took a toll on Americans [and by inference, the world] in 2016, but they are entering 2017 on an optimistic note, according to a new poll that found a majority believes things are going to get better for the country next year.

 

Global risks, economic risks, and the Global Risk Report

 

What is an economic risk, global risk and what is the Global Risk Report?

 

An economic riskis the chance that macroeconomic conditions like exchange rates, government regulation, or political stability will affect an investment, usually one in a foreign country.” In summary, a global risk is an external, environmental hazard or liability that has the potential to impact negatively on one or more country’s internal affairs.

 

Furthermore, the Global Risks Report is a study or report that is published annually by the World Economic Forum just before its annual meeting in Davos, Switzerland. In a nutshell, this report details the changes occurring in the global risks landscape from year to year, as well as identifying the risks that could play a decisive role in the year ahead.

 

Emotional influence and its effect on financial market investing

 

Emotional influence or emotional contagion occurs where one persons emotions and related behaviours directly prompt similar emotions and behaviours in other people. This influence is generally seen as negative rather than positive. I suspect that the impact of emotional influence is similar to the fake news phenomenon that is making headlines at the moment. If a high-profile politician doesn’t win an election, it is blamed on fake news. It might be true or it might be false; however, the salient point here is that people are heavily influenced by their peers, even to the point that they believe rubbish.

 

It is, therefore, safe to conclude that the financial markets will be affected by the emotional fallout from the current major global events to a greater degree than in previous years. What impact does this have on financial market investments or online share trading? The biggest challenge to the investor or shares trader is that the global stock and Forex markets are volatile and subject to large gains and losses without much warning. If major investors suddenly move all of their shares into safe haven/hedge stocks because they don’t like the uncertainty around the world of Donald Trump and his presidency, then the price of the US dollar will decrease against other major currencies and the stock markets will come under pressure.

 

Investment strategies

What should you do? Do you consider taking a long-term or a short-term position? What is the difference between the two? In a nutshell, one of the most problematic areas of technical analysis is concerned with time frame analysis. The length of both the long- and short-term positions are dependent of the type of trading you plan on doing. There are 4 different trading or investment types:

 

Day trading

Trades are opened and closed within a day with no positions carried over night. The different time frames for a day trader are as follows: short-term is seconds or minutes and long-term is hours.

 

Short-term trading

In this case, trades last from part of a day up to several days; therefore, short-term will be a few hours to a day or two and long term will be several days to a couple of weeks.

 

Long-term investing

Investments last from a few years to many years. Short-term will be a few years, while long-term will be from a decade upwards.

 

Position or Swing Trading

In this case, trades can last from several weeks to several months and can even be held for a few years. Short-term trading will be a week or more and long-term trading will be several months up to a year or more.

 

When deciding what position you want to take, you first need to determine what your trading style will be, and then you can work out whether you want to hold a long- or short-term position. In todays volatile economic conditions, its vital to research the stocks you are interested in; thereby, putting yourself into a position where investment decisions are based on information and not emotion or ‘gut feeling’.

 

Equally important is the choice of an online trading partner who is able to supply you with as much information (both on the current market conditions and on the long-, medium-, and short-term outlook) relevant for the assets you are interested in.

 

How do you find a reliable partner? The best way to find a trading partner is to read review sites written by current and ex-traders. Websites such as Stern Options review will provide you with a window into the relationship between the broker and the trader. In addition to reading review sites, it’s also important to have a glimpse at what social media says about the different brokers. Finally, have a look at the broker’s website and peruse discussion forums. At the end of this process, you will have a better idea about which binary options service provider is serious and professional about this business and which are not worth wasting time with at all.

 

Final thoughts

 

The world might be in for a tough time in 2017 and beyond. However, it is possible to invest successfully in the global financial markets; ergo, do as much research as possible. No matter who seems to be trying to convince you that their opinion is correct, always garner another professional opinion.

 

Once you have decided on a strategy, you have one of two options. You can stick to it no matter who tries to convince you otherwise. On the other hand, once you think you have decided on a strategy, don’t act right away, pause for thought and look at what others are saying again. Who is being realistic and honestly professional, and who is fantasizing; however, totally quixotic. The final step in this whole process is to implement your investment strategy. There is no point in second-guessing yourself. Trust yourself. You can make a successful of online trading in the current volatile market conditions.

Emotional Influence: The Economic Risks of Investing in 2017

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