There are plenty of things that could potentially stop you from earning a huge profit on a security or asset in your portfolio. A change in the economy, or a sudden downturn in business operations can turn a win into a loss in seconds. However, what many beginners don’t realize, is that their own emotions are often the biggest threat to their results. Inability to control your emotions in any financial situation means that you can’t make the right logical decisions for your cash, and your future.
In the short-term, the price of a commodity in the stock market reflects the emotions of an entire community. When investors are worried, stock prices often decline. On the other hand, when people feel positive, the price tends to increase. However, you should never allow your feelings to influence your decisions too heavily, whether you’re starting to learn swing trading, investing in the day market, or just spending on long-term strategies.
If you feel negative about the market, you’re in a bear mood, if you feel positive, this means you’re in a bull mood. During trading hours, you’ll notice a constant battle between the bears and bulls around you, changing according to speculations, emotions, and hopes. When a price moves in the opposite direction to what you expect, it’s bound to create a sense of anxiety. You might wonder whether you should sell a position to avoid a massive loss, buy more, or just hold on a little longer.
Even if your asset is performing exactly as you expect, you still have questions to answer about when you should cash in, and when you should hold onto your position. The more you watch the price of a security, the more anxiety you’re likely to feel, especially if you notice volatility in the industry. The key to success is making sure that emotions aren’t the primary driver of your actions. Instead, start every position with a specific strategy in mind. This is the strategy that needs to guide every decision you make as you build your portfolio – no matter how you might feel in the short term.
As much as some people in the investing landscape might talk about having a gut instinct about a certain business or security, the truth is that no important decision should ever come from your gut. You need to buy and sell based on solid information and accurate insights that you have on the current market. Whenever you purchase something, you need a valid reason for spending money, and a good expectation of what the price will do in the future.
At the same time, it’s important to have a specific point when you know it’s the right moment to liquidate your position and cash in too. This is especially important if your reasoning for buying something starts to prove to be invalid. If your stock or share isn’t acting the way that you thought, you don’t have to wait around forever just in case something changes. Begin your journey with a solid exit and entry strategy, and let those plans guide you.