Tips To Avoid Panicking

[savio13]

The market just had its worst week in over 5 years. So far in 2008, the market is down about 10%, and January isn’t even over yet! This has truly been a brutal year in the market. Panic is in the air, and people are unloading their stocks due to fear that it will get any worse.


Where the market will go is anyone’s guess. But to succeed in today’s market, one thing is clear. You need to not panic. Trading based on emotion is almost always a bad idea, and emotions are flying high right now. Here are three tips to help avoid making emotionally-based investment decisions.

1. Keep cash on the side. Most investors, even myself, always forget this piece of advice. When you are fully invested, you are more prone to panicking. You cannot take advantage of irrational dips in the market since you are already fully invested. A down day is always a bad day, as you can’t take advantage of stock bargains out there. When you have cash on the side, you can approach the market aggressively and not fear the down days.

2. Set a limit on how much you’ll trade in one day. Nowadays, it’s too easy to just sell everything in an emotional reaction to a down day. When people buy and sell bit by bit, they tend to make better decisions. They set an artificial barrier to preventing themselves from panicking.

3. If you decide to make a trade, wait an hour, take a walk, and then make the trade. This will allow you to think it over, get your emotions out of your system, and decide if you really should make the trade.