Many investors have a habit of piling into an investment at its top and selling when it hits bottom. This is often caused by media hype or fear. As such, they end up buying at the peak. For individual investors, monitoring of a portfolio actively is an important thing. Avoiding impulsive behavior can be as hard as an individual trade. Here are some tips on how to keep emotional trading in check.
There are many theories that try to explain investor behaviour where buyers regret or overreact. The psyche, if not checked can overpower rational thinking. If you wish to become trader, it is important to understand stress and euphoria as it relates to trading. A realistic approach to trading is quite important.
In most cases, a nonprofessional puts in money with the aim of making money. No investor wants to lose. However, losing is part of life if you wish to become trader. Investors will source their data from various sources. Most investors that trade alone are enticed by this information to make rushed decisions.
Accounting for Risk
One way to avoid impulsive trading is to understand risk. With a good grasp of risk, a trader can help keep their impulsive behavior at bay. Challenges with emotional trading often occur when an investor sees unidentified risks compared to what they had accounted for in their strategy.
Bull markets are a good example when the market tends to shoot up. In such a time, an investor may see opportunities that compel them to abandon caution and test new waters. This is often an attempt to make the most of the bullish market. When an investor finds out about bad events, they will let fear overtake them. It can cause them to go on a selling spree.
Bearish markets usually come with their caveats, which are important for an investor to understand. A bear market is hard to navigate, especially for newbies looking to get funding to trade. Equity holdings plummet fast which safe havens seem much safer due to the rising returns. In this period, it is hard to pick between buying during lows and buying into safe havens with safe returns.
Get the Timing Right
When it comes down to it, emotional trading is all about getting the timing wrong. The time between when an event occurs, when it is exhausted, and when it is reported is often short. This is due to the high efficiency of the markets. If you are an emotional investor who wishes to get funding to trade, always think about this market efficiency. By thinking rational about an event when it occurs, it can help to check emotional trading that gets into an opportunity when it is almost lost.
Use the Media
A good way to know when a bull or bear market is developing is to follow high-quality media sources. Besides that, an investor has to understand the trends. If you wish to get funding for traders, know that media houses often report news depending on the buzz in the market. Thus, rationality must prevail. If you get funding for traders, you have to know that the media sometimes reports baseless gossip, so take care with your sources.