Every market has its rules and numbers written in books which people follow by heart and then there are some co-rules never written but pronounced, from generation to generation, hierarchy to hierarchy, investor to investor. They may not be polished but generally are precise and come to rescue when books fail. Here are 7 market rules every investor must know;
- Markets always neutralize
Be it a high-tide or a low-tide, the levels of investment market sea always come back to the normal course or sea level. It is very important to stick to your original plan and not get deviated from the path due to temporary deviations. Keeping in alignment with the investment strategy is very important to reach the ultimate financial goals.
- Too much of anything is bad
If the markets are on a high-time rise, embrace and encash or be patient. An overly bullish market attracts an overly bear one. Do not react if there is a sudden downfall (I just said, high-tide or low-tide, the sea will be back to level soon), be patient and preserve your capital from any impulsive reactive.
- Do not go by the extremes
Even if you are a seasoned investor and have made a fortune or are let down by the sluggish market, do not fall prey to the investment market’s extreme behavior on either side. The markets always get back to their mean. This is one of the most committed mistakes by investors.
- Market corrections are synced with market movements
Expect a sharp correction in a sharply operational market. This will lead to most of your guesses go wrong but do not panic and remember the first point. Any decision taken impulsively may shortly convert to regret. Stick to your long-term plan and stay invested.
- Do not follow the heard, do your research
If you are among the investors who make buying and selling decisions based on the news feed you get on your mobile phone or in the newspaper, then it is highly likely you are making decisions in past participle tense. By the time news reaches you, the damage or the favor has already been done and if you make an investment decision based on that news, you are left behind.
It is very important to do homework. To make legit predictions and analyze the trends. Do not speculate, have facts at hand and apply logic. This will help you outperform the sheep of the herd.
- Do not let your emotions overpower you
Emotions have a much greater impact on the human mind than facts and logic. When we refer to the term emotions, we generally perceive happy emotions like love, joy, pleasure, etc. but there is another set of emotions as well which are if not more, equally powerful. The sad emotions impact the human mind with tremendous effect leading to impulsive decisions. The case gets worse when it is a bag full of emotions like fear, anger, greed, disappointment and so on.
Stick to your long-term plan and keep a vision of your long-term financial goals.
- Do not rely on unanimity
It is true. When everyone says left, 99.999999% of the times it will go right and this is no magic. It has got facts. You have bought what you wanted to buy, I have bought what I wanted to, likewise, most of the other buyers have got their part, there is no more selling.