You may have heard the stock market described this way. If not, let me be the first. The stock market reflects the emotions of investors. Plain and simple. Let’s face it, when you are making money, life is good. You think you have the Midas touch. You can do no wrong. Greed has gotten the better of you. It is hard, but you have to fight this over exuberance. Tell me the name of a company whose stock price is infinity. It does not happen. Markets will go up and down. You have to exercise self-discipline with attainable goals. You want to get out when your goal is reached but employ a tactic to ride a wave at the same time. My goal is to double my money every year by aiming for two percent a week. I use stop losses to get out when the two percent is surpassed and falls back to the two percent threshold. You can ride the wave by increasing your stop loss if and when it takes off.
When the market is tanking, fear is taking over. Rational thinking has left the station. Again, don’t let emotion get the better of you. There may be opportunities to short the market. Take them. Fear is a result of ignorance and doubt. Remove the ignorance and doubt and you remove the fear. How do you do that? Review your overall business plan. Review your success rate. Have the wisdom to realize you will never be perfect but remember the gains outweigh the losses. Remind yourself of this constantly to strengthen your faith. According to Napoleon Hill from Think and Grow Rich, fear and faith cannot occupy the mind at the same time.
To get ahead of the crowd you have to stay away from the crowd. Group think does not work when it comes to successful market investing. If you are doing what the crowd does, you get what the crowd gets. Misery enjoys company. Have the courage of your conviction. Employ a smart, realistic, attainable strategy that works over time and you will not be a victim of fear and greed. The crowd will follow you.
Cheers,
Al
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