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Fri, December 11, 2009 11:44:10 PMFrom: Market Edge <[e-mail]>Add to Contacts








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Emotion: Your Single Biggest Risk To Your Portfolio

I've been investing and trading for over 15 years, yet, this past year, I let my emotions convince me to ride out a storm I found myself in. When I finally sold, I found myself with an embarrassing $20 000 loss.

My simple rules for investing lead me to look at what to buy and when to buy it. Problem is, my emotion let me not place a stop loss (I've been investing for 18 years - why do I need a stop loss now? I know when to get out). First mistake. After the stock initially dropped, I should have sold. Instead, I let emotion suggest that hey, it will bounce back. It was in a strong uptrend, no news, it should bounce back. It didn't. Strike 2. Then the overall market dropped, and more people ran for the exits. I held longer, with some temptation to average down. Strike 3. I should have been out.

Instead, I stayed. Partly out of embarrassment for not getting out when my stop loss hit (which would have greatly limited my stop losses), and partly because emotion was clouding my ability to make an objective decision: get out of a bad situation.

It was only after I finally came to my senses that I sold for such a huge loss. I broke every trading rule I have ever suggested and paid dearly for it. Its taken a lot of trades since then to make back my money. Money that I shouldn't have lost in the first place.

We are our own worst enemy.

So how can you learn from my mistake? Easy: avoid these emotional traps, and you'll be able to make the right call. (By the way - since this ugly lesson in trading, I have enjoyed 19 winning trades out of 21 positions. Controlling your emotion leads to better stock selection, better entry points, and better exits).

Read the full article here: http://www.1source4stocks.com/newsletter/emotion.asp




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