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The Detriment of Emotions
Too often our detrimental emotions get the best of us, and
have serious and direct impacts upon our trading strategies.
This feature takes a look at how the investors just wanting
a little more often wind up getting a lot less.
For example, holding a stock that makes you lose sleep at
night can often cause you to make irrational trading decisions.
Trying to get one big score may make you pass on taking a
respectable gain when it is available to you. |
By taking the emotion out of investing, your odds of profiting
are far greater, while your chances of making impulse or irrational
decisions are significantly reduced.
An Interesting Thing
There is an interesting thing about greed, and you may have
seen it yourself a few times. Greed has no top. Greed has
no point of satisfaction. That's why there are horror stories
about investors sitting on 1000% gains, only to continue to
hold on as profit takers begin sending the price back to earth.
However, if that same investor had been asked what type of
gains he or she would like to see from the stock BEFORE they
actually invested, they would almost certainly come up with
a number far less than 1000%. This leads us into our next
point, and why it is so important.
Aim Before You Shoot
When you first buy a stock, set realistic and specific targets
of when you will sell. Whether it is after an increase of
40% or 200%, you should know them and stick to them.
It is OK to set a target sell point at 40%, then increase
this if the stock starts rocketing toward 100% gains. But
don't use the stock's move as an excuse to throw your original
targets away and hold out for 200% and 300% profits.
In fact, review our feature Cashing Out for concepts on selling
a portion of your holdings after the stock has made a good
move, which locks in your profits, but still lets some of
the money ride.
Adjust Your Aim
Having said that, make sure to factor new press releases,
financial statements, and market conditions into your target
sell prices. It is OK to adjust them higher if the market
suddenly gets hot, as long as you are also willing to set
them lower if the markets begin to run into a downdraft.
For example, a strong earnings report may mean that you would
be willing to sell at a level 20% higher than you had originally
believed would make you confident with your trade, rather
than thinking 'now I can really rake it in,' or 'I could probably
get...'
In other words, the bottom line must always be to focus on
achieving gains that you are happy with, and that are in line
with your original expectations for the shares. Act on expectations,
not hopes.
Sure-Fire Solutions and Tips
You may benefit from using stop loss orders, although these
have rarely proved effective for penny stocks with low trading
volume. A stop loss simply says to keep the shares if they
continue to climb, but sell if they sink to your strike price.
This method can enable a trader to limit their risks, but
still enable them to capitalize on any upward price movement.
Remember that it is better to sell too soon than too late.
If a stock continues to climb, you should remember that profit
takers can move in any time to lock in their gains, and if
they sell before you do you'll be looking at lower share prices
while they are off counting their profits. Every dollar that
a share climbs convinces more and more traders to start taking
their profits. You need to be among the first.
Once you've sold, don't be upset if the price continues to
climb. When the shares are at a profit level you are happy
with, take the gains and don't look back.
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This type of regret
is nothing when compared to the type that comes from wishing
you had sold before the price plummeted. There will always
be a million what-ifs in the market, but it's all part of
the game.
Be sure to review our feature, Cashing Out, which is closely
related to this report, and delves into some of the concepts
presented in Ready, Set, Greed in more detail.
Information, charts or examples contained in this lesson are for illustration and educational purposes only. It should not be considered as advice or a recommendation to buy or sell any security or financial instrument. We do not and cannot offer investment advice. For further information please read our . |
