Tips for Investment Planning & How To Overcome Emotional Trading


Most investors pile up their investment when the market reaches its top and hurry to sell them as it reaches the bottom. In this process they end up losing their hard earned capital and complain about the perils of investing in market.

There are factors like media hype, greed of quick money and fear of losing money that influence such decisions of an average investor. However, it is possible to avoid depressive and euphoric traps of investment and keep emotional investments at bay.

There are various theories that try to explain overreaction, regret and exuberance of an investor in relation to the gain and losses arising out of investments. It has been observed that rational thinking of an investor is overpowered by stress. The stress may be arising out of joy or fear.

A typical emotional investor seeks to earn quick profit and try to protect the capital. When market is buoyant and many friends, relatives and co-workers are learned to make quick money from their investment;

An emotional investor decides to jump in the bandwagon. Media usually reports a bull market when it has already arrived near the top. This is the prime reason for many investors to get invested when market is nearing that illusive “top”.

Unless something unusual happens, the stocks tend to retract or “correct” themselves in the ensuing period .Similarly when the economy is under pressure or cyclical bear phase grips the market, there are stories of doomsday coming near.

Fear of losing more capital compels the emotional investor to sell the assets brought during Bull Run. Lack of proper knowledge, information, patience and guidance are prime reasons behind such apparently ridiculous decisions.

The most effective strategy to overcome emotional investment is to invest in the market systematically and regularly. This can be done by a simple method called “dollar-cost-averaging”. In this process you set aside a fixed amount to be invested every month or quarter in a mutual fund or selected stocks.

During downward trend of the market you buy more shares but when the market is moving up you are buying less units. This has proved to be most rewarding process of investment for an average investor with little knowledge about market trend. Diversifying portfolio is another smart way to invest in market.


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