What Are Market Pains?

What Are Market Pains?
A hurricane in India can cause market pain in the United States.

Volatility

Market pain is reflected in a high measure of volatility. Think of price as a rubber band. If it travels a long way in one direction and is eventually released, it will snap back toward the beginning point before continuing in the direction of the trend. Rarely does a market grow or contract in a straight line; rather, it tends to whipsaw back and forth, though usually sticking with a trend, either higher or lower.

Doldrums

Doldrums are another type of market pain and should be considered the opposite of volatility. In the summer months, when many brokers and traders are on vacation, general price trends don't normally move significantly in any particular direction. Instead, they meander here and there but can't seem to muster the intestinal fortitude to make a big move and stick with it. Until an outside force comes into play, like good or bad economic reports, commodity shortages, political unrest around the world or natural disasters, the price will normally trade in a tight range that makes it difficult to profit.

Econmic Factors

Periodic economic reports issued by major countries can have a pronounced effect on the stock markets of the world and send them into a period of pain or pleasure. Low unemployment numbers and high inflation are examples of economic factors that can stimulate or de-stimulate periods of growth or correction. Since government economic numbers tend to have a large impact on consumer sentiment, which is another factor that can trigger market pain, investors look to them as harbingers of future price direction.

Speculation

Today's stock market is driven by speculation to a much larger extent than in the past. Speculation is when investors jump on a hot market or industry, intending to hold it only long enough for latecomers to jump on the bandwagon, then sell everything for a quick profit. When it seems that the market is making no sense and causing extreme anxiety for investors, simple speculation is often the cause.