If you worry too much about your investments, trade too often, lose sleep over losses, and are confused and depressed you may need to change your investing behavior. The stock market is not just another way to gamble. Your financial future and security depend on your ability to properly invest your hard-earned savings. Feeling comfortable with your decisions and being able to weather the bad times as well as the good is critical to your investment success as well as your mental health. Here are some tips that may help get you into the right mindset and prevent unnecessary losses.
Make a Plan and Follow Your Plan
If you need to change the plan, that is ok, but then stick to the new plan. Don’t let the daily ups and downs of the market force you to get in and out of the market too often. Trade only what you can afford to lose. Be diversified in your investments. Trade small amounts so you can diversify your portfolio. If low-priced stocks are too risky, try buying fractional shares of blue-chip stocks.
Stock Moves Are Often Random
Some people believe the market is like a rubber band. If a stock price falls for a number of sessions it must snap back. Basic statistics will tell you that a long series of flipping heads does improve the chances of flipping tails on the next turn. The odds are still 50/50 for each flip of the coin.
Beware the Falling Knife
Another mistake traders often make is making desperate, emotional decisions to recoup their losses. Buying more shares of a falling stock because they are now cheaper is what is called “trying to catch a falling knife”. There may be a good reason a stock price is dropping. You may have to wait for a very long time for the price to reverse direction. It may not ever reverse. Making some losses is inevitable. Your strategy just needs to assure that you make more good choices than bad ones, but you will always make both. The best thing to do after a loss is to analyze what happened and learn from your mistakes.
The Fear of Missing Out
FOMO means the “fear of missing out”. It is the anxiety you experience when you feel you are missing out on a once-in-a-lifetime opportunity. Do not rush to invest. Wait until you have all the information you need before you leap. It is easy to get in, but it may be difficult and expensive to get out. The market moves up and down all the time, creating great opportunities every day.