Every stock market investor 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 "E" stands for.
Emotions are the driving force behind every stock market cycle. Quite simply, if they weren't present in the stock market, investors could be reaping rewards based solely on the expanding or receding economy, and professional traders wouldn't have any juicy profits from those emotional mistakes to grab.
Here is an example scenario:
Let's say that you've done your homework, read the books, traded on paper, and now you're making your fondest dream come true by investing in the market and making money!
You maturely approach losses as part of the learning curve. You've experienced your share of them but your wins are still in the lead, thanks to the commitment you made of not deviating from your chosen strategy. Euphoria sits on your shoulder.
One day, after 3 frustrating hours in traffic, you get home to find changes. You know that you should follow your strategy, but Stress and Greed are in charge. You're buying and selling outside your strategy, but are confident that it will be ok ? just this once.
Now prices are dropping and Fear enters the room.
Fear attacks every investor's self-confidence with a voracious need for control. You spend sleepless nights listening to his mantra - you don't know what you're doing.
Fear and Greed are now dictating the strategy. Self-confidence is on the critical list. Reason and Caution are under attack and are losing.
You ignore the primary investment rule of buying low, selling high because you've lost too much and have to recoup. You close your eyes and dive in to recover your losses. "It will work," says Greed on your right. "It has to work!" responds Fear on your left.
Your partner has now entered the fray and is hounding you about the lost money. Your capital is almost gone. You erred grievously and invested money that you need now. Margin calls are being made. You're out of control.
While the components of the above scenario will change, the catalyst of this nightmare remains the same ? emotions. You'll survive the nightmare, but the experience will forever change you. Fear will shade every future stock market decision and severely limit your ability to objectively evaluate any investment opportunity out of fear that you'll lose again. But, it doesn't have to be that way.
Developing a strategy to deal with emotions can give you a winning edge.
Here's how:
Remember, the key isn't denying or curbing your emotions, but instead understanding how they impact your investment decisions and developing a strategy to work with them.
About The Author
Jeff Fairchild is the publisher of http://www.best-stock-trading-systems.com The site includes tips, techniques, strategies, and systems designed around improving your stock trading profits. Investors and traders! Are you overwhelmed by all of the online stock information on the net? One of these pages may be of help:
http://www.best-stock-trading-systems.com
http://www.best-stock-trading-systems.com
Oswego taxi to Midway ..Before you embark upon a journey of trading stocks or... Read More
The bulls and bears of the stock market are both... Read More
As one of my regular readers you know I have... Read More
Before they go over the cliff to their destruction these... Read More
Did you run out to buy that duct tape yet?... Read More
It has often been said that there is only two... Read More
Alfred Winslow Jones started hedge funds in 1949. He was... Read More
As an investor you will want to check out any... Read More
Since I can remember, and that's a long time ago,... Read More
Today's society gives special recognition to alcoholics, sexaholics, binge-aholics, shopaholics,... Read More
Do you have a nest egg? You know, a place... Read More
You remember the story about the frog that was put... Read More
How many times has this happened to you? You're at... Read More
Trading is a fascinating activity.There are so many layers to... Read More
Have you ever thought of investing? Do you have a... Read More
It is difficult to make money in a bull market,... Read More
One of the great truisms of Wall Street is "Don't... Read More
As GuruFocus updates the stock buys and sells of gurus,... Read More
Let's go into the details of why non-indexed mutual funds... Read More
It has been said that low cost or even free... Read More
The greatest stock market myth is the idea that investing... Read More
In November of 2000 when the NASDAQ was trading at... Read More
The Shadow knows. Remember him? It seems a shadow has... Read More
To become a successful trader you must have some kind... Read More
What! Me worry?Many of you remember the cover of MAD... Read More
shuttle from Midway Morris ..There are formulas for just about everything, but it has... Read More
Well, not really. What I mean is I don't mind... Read More
Maximizing a stock market investmentThere are several factors an investor... Read More
In one of my previous articles (Investing in the stock... Read More
It is wonderful to be alive in the information age.... Read More
Now where have I heard that before? I know. It... Read More
Everyone who follows the financial news has heard of mutual... Read More
When it comes to stock market trading it PAYS to... Read More
I receive emails from Morningstar. This company provides statistics and... Read More
When you become interested in a stock or mutual fund... Read More
Stocks breakout from properly formed bases everyday but many investors... Read More
AS BUILDERS BEGIN WORK ON THE FREEDOM TOWER in New... Read More
Every broker and financial planner will tell you that you... Read More
The stock market has been going up for more than... Read More
Mutual fund investing is a lot like Thai cooking. Everyone... Read More
Humpty Dumpty had a great fall and all the King's... Read More
I would like to share with the reader an article... Read More
When we go to the circus we see a trapeze... Read More
One Saturday morning, while he was sitting at his computer... Read More
What does it mean to short a stock?This means that... Read More
Fundamental analysis.Fundamentals analysis says the best way to predict the... Read More
Let's say you are interested in this one company. You... Read More
When it comes to mutual funds, there is a lot... Read More
∙ Make every investment in the stock market a long-term... Read More
One of the great "secrets" of successful people is discipline... Read More
Stocks & Mutual Fund |