Every investor in the STOCK MARKET faces one primal enemy. An enemy so perverse, it will drive thousands of investors from the stock market through its ability to defeat even the most practiced investment strategy. Who is this enemy you ask? Your arch nemesis, in this case, goes by the name E. Motions don't ask me what the stands for.
Here is an example scenario:
Emotions are the driving force behind every stock market cycle. basically, in the event that they weren't present in the stock market, investors could be reaping rewards based solely on the expanding or receding economy, & professional traders wouldn't have any juicy profits from those emotional mistakes to grab.
Lets say that you've done your home-work, read the books, traded on paper, & now you are making your fondest dream come true by investing in the market & making money!
You maturely approach losses as part of the learning curve. You have experienced your share of them but your wins are still in the lead, thanks to the dedication you made of not deviating from your selected strategy. Euphoria sits on your shoulder.
Now prices are dropping & Fear enters the room.
One day, after 3 frustrating hours in traffic, you get home to find changes. You know that you ought to follow your strategy, but Stress & Greed are in charge. You are purchasing & selling outside your strategy, but are confident that it will be ok this six times.
Fear & Greed are now dictating the strategy. Self-confidence is on the critical list. Reason & Caution are under assault & are losing.
Fear assaults every investors self-confidence with a voracious need for control. You spend sleepless nights listening to his mantra - you don't know what you are doing.
Your partner has now entered the fray & is hounding you about the lost money. Your capital is very gone. You erred grievously & invested money that you need now. Margin calls are being made. You are out of control.
You ignore the primary investment rule of buying low, selling high because you have lost much & must recoup. You close your eyes & dive in to recover your losses. It will work, says Greed on your right. It has to work responds Fear on your left.
Developing a strategy to deal with emotions can give you a winning edge.
While the parts of the above scenario will modify, the catalyst of this nightmare remains the same emotions. You will survive the nightmare, but the experience will forever modify you. Fear will shade every future stock market decision & severely limit your ability to objectively evaluate any investment opportunity out of fear that you will lose again. But, it doesn't must be that way.
Here's how:
# Don't go in to the stock market to feel lovely about yourself.
# Always look outside of the stock market for self-gratification & affirmation.
# Make a dedication to stick to your selected action plan or strategy. Don't deviate.
# Think before you leap in to anything
# When a loss occurs, examine it & learn from it. Don't try to get even.
# In the event you are stressed out, vulnerable, or excessively emotional (high or low), do not trade. Its not worth the financial risk.
Keep in mind, the key isn't denying or curbing your emotions, but in lieu understanding how they impact your investment decisions & developing a strategy to work with them.
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