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Hirschhorn: Fighting Trader Trepidation

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Hirschhorn: Trader Trepidation in 2010

(Video: Market coach Doug Hirschhorn, PhD, discusses how traders are likely to deal with Trader Trepidation in 2010.)

The theme for this week and probably for the next few months is “trader trepidation.” Here are three reasons why:

Memory of not getting paid is fresh in traders' minds When traders have a bad year (like 2008), it usually takes two to three years before they get paid again. For example, in 2008, traders lost money. In 2009, they made back the losses from 2008, and in 2010, if they make money, they'll get paid in the first quarter of 2011. That’s a long time to be in the penalty box.

Equities are likely to be especially tough in 2010 We haven’t seen the end of the Galleon situation and have no idea how the SEC is going to tighten regulation. This creates a large amount of uncertainty and, for traders, when too much uncertainty exists, they sit on the sideline and wait.

Distractions will fill traders minds During the next few months, expect to hear a lot of discussions about Wall Street payouts. Some firms had record years in 2009 and plan on paying traders big. This will really bother politicians and jobless Americans and the end result will be a revamping of how traders get paid on the Street. The good news is, Wall Street will likely turn into more of a pay-for-performance situation. The bad news is, it’s going to take a while to figure out, and that means major distractions to professional traders. The more time they spend thinking about how they’ll get paid, the less they’re able to think about making trades.

So where will the opportunities be in 2010? From what I’m hearing, it looks like gold, oil, currencies and other deep, liquid, unregulated global commodities are where the action will be. That's still one place traders can get great price action with the least amount of headaches.

Think better, invest smarter.