While the Dow Jones Industrial Average (DJI) fell more than 10% from its 52-weeks high, entering a correction phase, many traders exited their positions on fears that the downwards movement will not stop. While the traders are exiting in fear, the correction created an opportunity for investors to enter the market that has been on a bullish trend since 2009.
Relations Between Investors and Traders
I have always believe that investors and traders can work hand-in-hand when it comes to investments. Traders would usually buy the shares when the prices rises, pushing the price even higher. When there are news, traders will exit their positions creating a temporary fall in price.
Investors on the other hand buys shares when the prices falls, creating a support for the price. When the support is being established, traders will come back again, pushing the price further up.
When Fears Means Opportunity
Over the last two weeks, the stock market encountered a roller coaster ride. Prices fell on China devaluation of the Yuan and on fears that Fed will raise the interest rates in September. Traders started to exit their positions locking their profits from their earlier investments. This actually creates a great opportunity for investors to enter the market with the dip, allowing the investors to buy shares of companies at a discount.
After the investors enter the market, the opportunities will be given to the traders who will push the price higher.
The Bottom Line
So right now, when everyone is fearful, it creates an opportunity for investors to put their money into the market. This can be interpreted from a quote by Warren Buffet:
“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”