Have you ever experienced getting angry, fearful, sad, hopeless? Or getting too excited? Chances are it is hard to think when your emotions are high.
Hirap mag-isip di ba?
One of the pitfalls of stock investors is emotional trading. It is interesting to see how stock investors go through different emotions as the stock price goes up and down.
Let us dig deeper into the several emotions
Emotions of Fear
When you see your stock portfolio to be covered with red (lugi) and you hear bad news about stock market or about the company you invested, the first normal reaction is fear.
“Nako, baka malugi ako.”
Usually, when this happens, the normal instinct of the investor is to pull the plug… Bentahan na bago maubos ang pera.
What is the worst thing that could happen.
The slight dip in the stock market price was caused by external market factor that was corrected in few days. Then the stock market picks up and the prices start to go up. You miss the earnings since you have pulled out your money from the market.
Hindi ka na nga kumita, lugi ka pa.
Emotions of Greed
Greed can be your worst enemy.
You see your stock investment goes up. You have already earned a good amount of profit. But there is a tingling feeling inside you that says the stock prices will continue to go up and I will earn more.
Aakyat pa yan. Kikita pa ako niyan….
Then the market correction happens! Boom. Stock prices plunges and you see your profits pass by. Worst case, you see your green stock portfolio turns to red.
Kumita ka na sana, nalugi pa. Pera na, naging bato pa.
So What Can You Do to Rule Over Your Emotions?
To avoid being over ruled by your emotion and to say good bye to emotional trading, you need to have trading rules from the time of purchase.
The Importance of Trading Rules
You can think on paper before every stock purchase. You can come up with the following numbers before you buy your stocks.
- What stocks to buy
- How many shares of stocks
- What price to buy
- What price to sell
Write these numbers down. Stick with it whatever is shown on your screen. Whether you see red (losing portfolio) or green (winning portfolio), you need to buy when it is time to buy and sell when the target price is hit.
How To Create Trading Plan
You can check out stock broker analysis and go through the charts and come up with the number yourself. You can visit stock forums and learn from the members how they create their trading plans. Just be sure that you are talking to a reliable person who has your best interest in his heart.
Or you can subscribe to Truly Rich Club.
Members of the TRC access a password-protected site where they can see at a glance what stocks to buy, what price to buy and what price to sell. It is updated daily.
You need to have an investment or trading plan when investing in the Philippine stock market. Otherwise, you are prone to do emotional investing. This is a sure recipe for a financial disaster.
Image Credit: Toohightoolo.