4 simple ‘Must follow’ rules for everyone.

Stock market would be a place full of surprises for beginners. Just when you thought you’ve done a good job buying a share, the prices can come down unexpectedly . Or on one fine day , just as you thought everything’s normal, the stock prices may go frenzy recording gains after gains. Everything may seem to be totally illogical to you. Such dramatic moments are part of a stock investor’s life and it is in these situations that people lose control and forget all that they’ve learn’t . Let’s go through 4 situations that’s so common in every investor’s life.

SITUATION 1

As you start investing, you start following economic news more carefully than before and get caught up in daily headlines and assume the stock market is facing a new and unprecedented crisis.Credit crunches, liquidity problems, crashes in particular stock sectors, and other major problems have all rolled through the market before. This doesn’t mean that market won’t react badly to severe problems. However, experienced investors know there is usually an end to any crisis and the market will be back on track.The recent stock market crash and the way market bounced back in two years is an example we all experienced. Many of them sold their positions when the market crashed.

Remember this first Rule- Have patience !If you have bought a share at the right price, Hold it. A big fall will have an equally big rise.

SITUATION 2

The reverse is also true.Imagine this situation- The stock market is soaring up like a rocket. Your broker expects the market to go beyond imaginary levels. The market sentiment appears to be so positive that you’ll find it hard to resist. Everyone who’s investing keeps getting profits everyday. Naive investors watching a bull market run may go crazy looking at the way market moves. As a result, they may not choose their investments wisely and push the prices of hot stocks even higher. Because they are inexperienced, they buy stocks they hear about on television or from friends. That’s the time to be cautious. -

So here’s the second rule- A big rise will have an equally big fall .wait for the fall patiently.

SITUATION 3

You have done your homework, including identifying the entry point for a promising stock. Now you are waiting with anticipation for the price to reach your entry point. Instead of pulling back the price lunges upward.You dont want to miss the bus. You panic, entering an order that is higher than your entry point. Now you have given away some of your potential profit and violated your risk reward of the trade. You even knew it was a mistake to make this trade, yet you let your emotions rule the day. Later it pulls back to your entry point. If only you had be more patient. Now you are faced with another decision: Do you buy more or do you wait to see what happens next?

That brings us to the third rule- There are many fish in the lake and it isn’t necessary to catch every fish that swims by in order to be successful. In fact, it’s only necessary to catch those few that bite.

SITUATION 4

One of the stocks you have been following hits your entry point and you pull the trigger. You invest money in it. Now you wait for the expected to happen. It starts its move up and your positions are in profits.You feel confident and positive. However, according to your analysis it still has more room to run. Then it un-expectantly retreats and falls below your original entry point. You panic and end up selling it off with a small loss. Then the price moves up again and reaches your target, only you are not participating. You’re well thought plan was right, only you let your fear of a loss get in the way of the trade proceeding as expected.

That brings us to our final Rule - Give time for your money to grow.

CONCLUSION

Do your home work , invest and just stick to your plan. keep learning, be disciplined and let the market do the work for you. Exhibiting patience when investing , having patience while your investment grows and keeping your nerves during market crash are integral parts to investing successfully. However, allowing patience to turn into stubbornness is something you must always guard against.

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1 Response to “4 simple ‘Must follow’ rules for everyone.”

Kelenna

September 20, 2011 at 10:19 pm

Heck yeah this is exalcty what I needed.

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