Investing into the stock market can be a very emotional thing. It can be hard to keep your emotions in check and actually make rash decisions when getting into a stock. But luckily there are some things you can do about it. The next time you find yourself emotional investing think ask yourself these three questions.
1. Why Am I Buying This Stock
Why are you actually getting into the stock? Is it because you heard somewhere that it is going to go up and you didn’t want to “miss out”? Or you have some fundamental or technical reason for getting into the stock. Unless there is something solid backing your decision it may be better to just walk away.
2. How Am I Going to Limit My Risk
Even if you believe that your stock is the next Microsoft you may still lose all of the money that you put into it. Because of this it is important to limit your risk, this way you do not end up losing your entire account on one bad trade.
One way to limit your loss is to invest only a small portion of your account into any one stock. This way if you lose it you are still ok. You may also want to have some sort of stop loss on the stock to get you out early if the stock turns against you.
3. When Will I Get Out?
Something that people often forget is their exit strategy. Sure it is important to know when to enter, but even the best entry signal in the world will not help you out that much if you lose it all by holding onto the stock for too long. Figure out what you are trying to accomplish beforehand.