Avoiding Panicking

by Shaun
(St George Utah)

Panicking is something that we all want to do in the stock market at times. It is one of those things that can cripple our returns and make us lose money even if we have a winning stock trading system.

Many traders will go out learn the stock market basics develop a trading system and then go out to backtest it until they are confident that it will make money.

Unfortunately most traders will be held back for one simple reason, their emotions get in the way. Most traders will buy a stock watch it go up for a couple days and get very excited.

But then a big down day happens and we panic what should I do, do I sell? What if the trade hasn’t hit my stop? Should I still sell?

It happens to all of us. When it does it is very easy to go around reading every new event about the company or go out and ask everyone you know what to do.

In fact someone just asked on my stock market questions page the question, when to sell stock? I have to think this question was related to the two huge down days in the market which definitely broke through some short term support levels. I can’t blame them for asking, if I had no exit plan before entering a trade I would be worrying too.

Whenever something major like this happens it is easy to panic. Instead ask yourself, what do your rules tell you? Have you hit your stop?

I’m still in a few positions that have come down pretty far but are hovering just over my stop. For all I know there is another bears market coming, doom and gloom may appear, but am I selling out of my positions? No, and the reasons is simple, my rules tell me to stay in.

You can bet that if the market keeps coming down I will exit those positions (for a nice profit unless there is a huge gap) but only if my rules tell me to.

So don’t panic, instead know your exit plan before hand and follow it.