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6 Ways to Overcome Market Psychology


Market psychology is the reaction to investing. Overcoming market psychology is not easy, but learning how the market works can reduce the number of surprises and increase your degree of success. Keep in mind, all assets rise and fall in value. The more extreme the swing, the stronger the sentiment. For market success, develop awareness and work with a professional who is experienced and can offer sound advice.

1. Equalizing the Costs

Costs include monetary and non-monetary expenses. Monetary is comprised of transaction and brokerage fees. Know what you're paying for and why. Non-monetary expense is the time spent learning about the market and understanding the investment process along with managing the shifts between the increase and loss. Much like the past, today’s modern portfolio needs the assistance and watchful eye of an experienced market professional. It’s not enough to guess or even estimate changes – efficient planning is necessary.

2. Long-Term and Short-Term

The nature of the market is the volatility of prices rising and dropping. Our emotions share a similar reaction between excitement and depression. Surges of pleasure with favorable up trends and neurotic negatives with declines. 

The long and short of it is about now and the future – both terms play a vital role in learning how the market shifts affect your choice.

  • Long-term is noted for continued performance and consistent results.
  • Short term focus on temporary boosts during innovative or downturn markets. 

3. Market Awareness

Start by figuring out your financial characteristics. This requires an honest assessment of your knowledge, means, and objectives. There are two noted market trends – bear and bull. They are both related to volume shifts. Bear markets have prices falling accompanied by the urge to sell. Bull markets are steady and confident; prices go up involving rational decisions to buy or sell. For this reason, working with an experienced professional is a benefit – they are going to help ease the emotional burden of ups and downs and help you plan financially for the same. 

4. Manage and Control

Unfortunately, emotions can be drivers for selling early (short-term) diminishing the significant gains (long-term). As we go through various phases in life so does the market. On the average upswing, markets have a lifespan of five years. It doesn't mean earnings stop entirely – but they could settle in with a slower and more steady growth. Here, diversity and multiple selections are necessary for a healthy portfolio. Don’t underestimate the value of the entire portfolio, one investment increasing won’t stand alone over time.

5. Move Forward

Get over the past experiences and focus on the future. It's coming with or without your approval – better to be part of the plan and manage your expectations now so you can reap the benefits down the road. Start slowly and build confidence, manage risk and stress, allowing the market to respond back to you - positively over time. 

Questions to ask yourself: Does your plan have a solid strategy built into it? If you have some concern, ask an experienced professional for help.

6. Change Perspectives

Most individuals don’t experience success immediately, and our mind, as a result, can associate financial markets with negative emotions. Acknowledge that investing is not just about winning and losing – it’s about sound strategy and duration.

This content is developed from sources believed to be providing accurate information. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.