It all starts with a positive outlook or something that leads us into buying a stock.
The stock price starts moving our way and that feeling of excitement begins. The market continues to act favorably and the feeling of confidence grows. This is a time when everybody is picking stocks successfully.
EUPHORIA AND GREED
Our investments continue to appreciate in value and we start trading on any investment that strikes our fancy. This is the point of maximum financial risk but also maximum financial gain. The concept of risk aversion is often ignored during these times. The news is generally good and everyone is talking about the market going higher.
The markets start to show their first sign of weakness and threaten to take your profits away. However, I’m a long term investor and everything will sort itself out after this correction has run it’s course.
The markets don’t make the expected return to new highs and continues to slide even further. We continue to hope for an improving trend to once again establish itself.
Perhaps we are not as smart as we once thought. Instead of being confident in our trading we become confused. Should we buy more stock at a lower price to average down? We could have gotten out with a small profit just a few weeks ago.
At this point all of our profits have been lost and we are showing large losses. This is very emotional time, we are completely lost. We are at the mercy of the stock market and have lost all control over our situation.
We have lost all hope and there is no doubt that further declines will follow. We sell out of all of our positions at any price. We just want to be out of the market at any cost. Who want to own stocks? The markets are not for us and should be avoided! However, this rare point marks the point of maximum financial opportunity. Some will have learned from their mistakes and will look for ways to avoid the greed and embrace fear.
Perhaps things are improving. Maybe a new cycle is beginning. Time to start looking for new opportunities.
The markets are turning positive again and for those who have held on to their investments can see some improvement. Perhaps we can make money this time around. The cycle is starting all over again…….
It is extremely useful to know the stage of the cycle that the market is in and rarely does your broker provide that kind of information.
There are many stories of individuals of ability, good traders and keen businessmen and women that overplayed their hand. Many times they knew when to come in, but they don’t know when to get out. The perfect investor needs to know when to come in, when to stay out and most importantly know when to get out once he is in.