Control Your Emotions!
April 4, 2018 2021-08-03 18:07Control Your Emotions!
Control Your Emotions!
Creating a “game plan” for your investment is the best way to execute your trade. However, without discipline, it is nearly impossible to execute successfully. Now, you may be wondering what do I mean by discipline? Well, its quite simple. Look at this example: Many of you may have a plan for the weekend. That plan may be cleaning the house, vacuuming the floor, getting groceries, preparing dinner, and etc. You follow your game plan, so that at the end of the day you are able to prepare dinner and feed your family. Although, there may be times where you are distracted and you start watching TV instead of vacuuming the floor. Therefore, your duties are pushed to a later time resulting you and your family going out for dinner and eating late. This is a prime example of how discipline is not shown due to your “desire” to relax and watch TV.
This same concept is used when investing in the stock market. Two of the biggest emotions that move the market is FEAR and GREED. The follow is an example: Let’s say you decided to invest in Apple (Ticker Symbol: AAPL). From your analysis, you decide to buy AAPL at $100. You buy it at the market price and after few hours you see AAPL increase to $110. In your game plan you wrote down that you will sell AAPL at $110, which you did. However, after an hour AAPL released their earnings report which states that they have beaten analyst expectations. Thus, you see the price increase from $110 to $125. You start to beat your head on the table because you could have made an extra $15/share. Therefore, you get greedy and you start to buy shares of AAPL, hoping it will continue to rise. You buy AAPL at $125 and it closes at $124. Your beating your head on the table again, because you are now loosing $1/share. Thus, you decide to hold until it reaches above $125. But you start to see that throughout the week the price has dropped from $124 to $109, giving you a loss of $15/share. This is a great example how greed can damage your game plan completely. If you were disciplined enough, you would have stuck to your game plan and you would have made $15/share.
What is the moral of the story? Control your emotions! Set targets of when you will sell and buy. Be disciplined enough to execute your plan successfully. If your game plan does not work, make sure you have a back up. For example, if you buy AAPL at $100 and your expecting to sell at $110, make sure you have a game plan if it were to decrease in value. You may pick a value such as $90. Therefore, you have two “game plans” for AAPL, and that is sell at either $110 or $90. This minimizes your risk and increases your potential to do better.