When it comes to investing, the first rule thing you need to learn is effective management of your emotions. It is impossible to eliminate the impulse to act when euphoria or panic are in the air yet, while you cannot eliminate the emotion that pushes you to react, you can control your reaction. You can choose to run with the herd or fight panic and stand aside while the herd stampedes…
By Sol Palha (tacticalinvestor.com)
Below are more rules of investing from a contrarian point of view.
- Manage your emotions:
- Panic and euphoria are useless when it comes to trading. Control them or be controlled by them.
- Be patient and disciplined:
- You cannot win in the markets if you are in a rush and lack discipline. You need to wait for the crowd to panic, before deploying large chunks of your money into stocks.
- If you decide to short the markets, do not oppose the masses just because they have jumped on the bandwagon. One must wait until the bandwagon is overloaded and threatens to buckle under its weight before you head for the exits and plan on taking a position that opposes that of the masses.
- Avoid all forms of popular media:
- In other words, if you are going to these places for investment advice you are probably not going to fare well in the long run. [Only] use popular media to get a gauge on what the masses are doing.
- Develop a strategy before you start playing with real money…
- The plan should include profit targets on each and every trade, and, an exit plan, in case the trade does not work out.
- Use technical analysis:
- All traders should have a firm understanding of the basic concepts of this field. Try to understand how 2-3 technical indicators work. Doing so will greatly improve your odds of succeeding
- Study and understand the markets you are going to trade in:
- We have put up an extensive list of resources, all of which are free here. Free Trading Resources
- Balance your wins:
- When you win a significant amount of money, help one person in your lifetime and your rewards will be 100 fold.
- Don’t trade options:
- Under no circumstances should you trade options until you have a firm grasp of the buying and selling [of] stocks. Once you have locked in some profit, you can use some of this money to trade options if you still have the desire to do so.
- Learn to relax:
- A stressed mind is no good to you. A diseased body is a body not at ease, so if you are not at ease, you will perform miserably in the markets.
A true contrarian:
- never opens a position unless blood is freely flowing on the streets or the investment in question is despised or being ignored by the masses. Buy when the crowd is paralyzed with terror and panic and sell when the masses are jubilantly buying. When you are feeling ecstatic, flee for the exits.
- is never too confident as this is usually arrogance disguising itself as confidence. The stock market takes no prisoners.
- uses stops to help minimize one’s losses. Never open a position without determining upfront how much you are prepared to lose.
Investing is all about emotions and overcoming them. Do not align yourself with the crowd for they are notorious for being on the wrong side of the equation.
Want more such articles? Just “follow the munKNEE” on Twitter; visit our Facebook page and “like” an article; or subscribe to our free newsletter – see sample here.[The original article* is by Sol Palha (tacticalinvestor.com) and is presented above by the editorial team of munKNEE.com (Your Key to Making Money!) and the FREE Market Intelligence Report newsletter (see sample here – register here) in a slightly edited ([ ]) and abridged (…) format to provide a fast and easy read.]
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