The investor’s game takes you through a wide range of human emotions. Learning how to embrace and release fear, greed and hope, can help you stand out from the investing crowd.
Most stock investors allow their emotions to rule their actions. Greedy pigs hold onto stocks long after the stocks have topped out and suffer through sharp corrections. Hopeful investors refuse to sell after a stock has tanked for good and fearful investors rarely make any money as they panic and sell out just when their winning stock starts its ascent.
Cut Your Losses Quickly and Let Your Winners Ride
Learn how to cut your stock market losses quickly. Some investors suggest cutting losses when the price drops 8% to 10% below cost if you’re investing in fast-moving growth stocks. Lose the idea of being hopeful or optimistic when your investment tanks quickly. Whether your stock drops 10% in hours, days, weeks or months after your purchase consider selling the stock immediately to prevent future massive losses.
Practice letting your winners ride to maximize your profits. If a stock is up 20% or 25% from your purchase price consider taking some profits and allowing your investment to appreciate. Let the stock perform well to see the greatest returns. Don’t fear losing out on profits by quickly selling out when you’ve seen a quick 10% uptick. Don’t get greedy when you’re up 30% and refuse to take any profits. Simply set up a hard and fast rule that you’ll take some profits at the 20% mark but that you’ll let the stock value increase unless you see highly irregular behavior like a sudden dip or perhaps a 200% increase in hours due to some big development within the company or industry.
Practice Emotional Control
The stock market is ruled by a mix of fear, greed and hope. Fearful people sell out quick when their stock experiences a minor correction. Fearful people also hold on to a tanking stock in a nose dive because they fear missing out on a potentially prospering opportunity when they should sell immediately.
The market is ruled by greed when a large group of investors hold onto a stock through its meteoric rise when they should be selling in small lots to take a profit. Eventually, most of these high fliers fueled by greed crash outright or simply take a 50% or 100% correction which terrifies greedy bloggers.
Hopeful people hold stocks that drop 50%, 100% or more within a period of weeks or months. Even though the fundamentals of the company are terrible and the stock’s technical aspects signal a losing investment people who hope too much either go broke or their portfolio takes a serious hit.
Practice emotional discipline to see the greatest investment success. Disciplined investors are fearful when most investors are eternally hopeful or disgustingly greedy. Disciplined investors are hopeful when most in the stock market are fearful. Learn how to spot fear, greed and hope in both yourself and in the collective consciousness of the stock market to maximize your profits.
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