Fight or flight is built into our DNA when confronted by stress and fear. Our natural human instincts are difficult to manage when market volatility ratchets up. Anxiety over losing hard earned money, and just being wrong, is increased in the hyper information media world that blurs the line between manufactured news and true crisis.
Volatility can be an opportunity for those with the skills to take advantage of big price moves. Markets are not good or bad…they just are.
A couple of simple tips can help you stay calm throughout the tough days:
- Think Long Term – All short-term trades should already have a stop-loss exit strategy built in so that panicked buying or selling is not needed. That disciplined risk control plan must be created PRIOR to position entry. Other assets that may be locked in for years and even decades can be evaluated monthly or quarterly to shift allocation if macro market conditions change.
- Turn Off the TV – Financial news channels dramatize events to ensure your continued dedication to their programs. They are in the business of boosting ratings with market infotainment and advertisements. Their goal is to make money for themselves…not you!
- Take a Walk – Get up from your computer and clear your mind with a distraction. A five-minute stroll to get a coffee can prevent reactionary chasing of the market that is rarely profitable. Breaking the focus on your fears does wonders in seeing possible opportunities.
- Remember, It’s Only Money – Nobody died on the operating table, tomorrow is another day. Proper dollar allocation and asset diversification should prevent any catastrophic damage to your portfolio. If any one day can do that much financial damage, then your risk control needs a redo.
- Fade the Crowd – Sheeple (sheep-like people) will get sheared. Opinions are often wrong when everyone is on the same side of the trade. Think about the Crisis De Jour of Greek debt, Euro collapse, China slowdown, Oil going to $10, etc. of the last few years that never developed as predicted by doomsayers.
Often times the best buying opportunities are when you cannot think of any reason for the market to move higher. The risk-to-reward ratio is in your favor after that big break or you can just keep your hands down, stay in cash and wait for another day…
