Emotional Investing: Tips And Advice To Keep In Mind

​Emotions can be such a threat to an investor's financial health.

Emotions in trading can affect your portfolios performance
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When things are great, we feel that nothing can stop us. And when things go bad, we look to take drastic action. Because emotions can be such a threat to an investor's financial health, it is important to know how to keep your head above water in the cycle of investor emotions.

You can't stop the wave, but you can learn to surf. An investor's worst enemy is not the stock market but his own emotions.

Closing a position at loss is problematic if:

• One trades with too much risk or, even worse, goes all-in.
• Emotions influence actions, greed, and fear take control.
• One does not diversify the portfolio and bets everything on one position (positions from the same sector). High correlations within the portfolio lead to the fact that one has basically only one trade despite many positions.
• No strategy available.

Mental challenges that can arise:

Emotional trading due to losses or gains is one of the most prominent reason why you will rarely find highly emotional people succeeding in trading. Emotional control is the secret ingredient that many are looking for.

Another big problem is when you fall in love with a position and don't want to let go. This affects profits and losses. Often people do not set a stop loss because they are sure they will close the position at a profit.

An investor's worst enemy is not the stock market but his own emotions.

Keep these in mind:

• Accept the fact that as soon as you open a position, you are immediately in the red due to the spread and transaction fees.
• Losses are part of business. It is more important to avoid losses than to focus only on profit.
• Trading ideas do not have to work out the way you planned.
• Do not become a victim of the so-called "revenge trading." When out of the sheer anger, you try to make up for the losses you have suffered with higher risk. This is very likely to lead to even higher losses.
• Even if one should let profits run, it is recommended to take at least partial profits at important points.
• One should pay attention to low correlation and sensible weighting of the individual values within the portfolio. Here, one should also use the advantages and disadvantages of so-called mega caps and small caps skillfully to stabilize the volatility of the portfolio.
• You can try demo trading and it is not a shame. If you cannot profitably implement the trading strategy in real trading, you are very likely to create more losses due to the emotions in live trading.