munKNEE.com Your Key to Making Money
When it comes to investing, the first rule thing you need to learn is 
effective management of your emotions. It is impossible to eliminate the impulse to act when euphoria or panic are in the air yet, while you cannot eliminate the emotion that pushes you to react, you can control your reaction. You can choose to run with the herd or fight panic and stand aside while the herd stampedes…
By Sol Palha (tacticalinvestor.com)
Below are more rules of investing from a contrarian point of view.
- Manage your emotions:
- Panic and euphoria are useless when it comes to trading. Control them or be controlled by them.
- Be patient and disciplined:
- You cannot win in the markets if you are in a rush and lack discipline. You need to wait for the crowd to panic, before deploying large chunks of your money into stocks.
- If you decide to short the markets, do not oppose the masses just because they have jumped on the bandwagon. One must wait until the bandwagon is overloaded and threatens to buckle under its weight before you head for the exits and plan on taking a position that opposes that of the masses.
- Avoid all forms of popular media:
- In other words, if you are going to these places for investment advice you are probably not going to fare well in the long run. [Only] use popular media to get a gauge on what the masses are doing.
- Develop a strategy before you start playing with real money…
- The plan should include profit targets on each and every trade, and, an exit plan, in case the trade does not work out.
- Use technical analysis:
- All traders should have a firm understanding of the basic concepts of this field. Try to understand how 2-3 technical indicators work. Doing so will greatly improve your odds of succeeding
- Study and understand the markets you are going to trade in:
- We have put up an extensive list of resources, all of which are free here. Free Trading Resources
- Balance your wins:
- When you win a significant amount of money, help one person in your lifetime and your rewards will be 100 fold.
- Don’t trade options:
- Under no circumstances should you trade options until you have a firm grasp of the buying and selling [of] stocks. Once you have locked in some profit, you can use some of this money to trade options if you still have the desire to do so.
- Learn to relax:
- A stressed mind is no good to you. A diseased body is a body not at ease, so if you are not at ease, you will perform miserably in the markets.
Final words
A true contrarian:
- never opens a position unless blood is freely flowing on the streets or the investment in question is despised or being ignored by the masses. Buy when the crowd is paralyzed with terror and panic and sell when the masses are jubilantly buying. When you are feeling ecstatic, flee for the exits.
- is never too confident as this is usually arrogance disguising itself as confidence. The stock market takes no prisoners.
- uses stops to help minimize one’s losses. Never open a position without determining upfront how much you are prepared to lose.
Investing is all about emotions and overcoming them. Do not align yourself with the crowd for they are notorious for being on the wrong side of the equation.
Want more such articles? Just “follow the munKNEE” on Twitter; visit our Facebook page and “like” an article; or subscribe to our free newsletter – see sample here.
[The original article* is by Sol Palha (tacticalinvestor.com) and is presented above by the editorial team of munKNEE.com (Your Key to Making Money!) and the FREE Market Intelligence Report newsletter (see sample here) in a slightly edited ([ ]) and abridged (…) format to provide a fast and easy read.]*http://tacticalinvestor.com/9-ways-to-build-wealth-in-the-stock-market/
Related Articles from the munKNEE Vault:
Investing & Speculating: Where Do You Fall In The Spectrum?
It’s important for every trader to understand that their trading decision-making process can have an impact on their portfolio’s overall volatility and performance. Let’s examine two main approaches: investing (methodical) and speculating (impulsive).
2. How Big Is Your Appetite For Risk?
To help give you additional insight into your attitude toward risk, we’ve compiled a list of questions that together look at risk from a broader perspective than what typical questionnaires tend to address.
3. A Portfolio Risk Assessment Should Include More Than Just Your Investable Assets – Here’s Why
Often when we hear about “investment portfolios” our minds go to stocks, bonds, cash, ETFs and mutual funds. We think about our 401(k) and IRA. In other words, we think about investable assets, and we pretty much stop there but I would argue that there’s more to your portfolio than just the securities in your brokerage account. [Let me explain further with a few examples.] Words: 500
4. Consider Your Risk Tolerance When Allocating Stocks To Your Portfolio – Here’s Why
There is a common notion that stocks, at least if held for a long-time, outperform other assets [and, as such,] should be the cornerstone of any long-term portfolio. [While that is indeed true,] it is best to focus first on how much you are able and willing to lose (i.e. what risk you are able and willing to bear) when determining the optimal allocation for your portfolio. [Only] then [should you] think about what potential investment returns you might be able to capture. [Let me explain.] Words: 1503
5. Investing Need Not Be A “Risky Business” – Here’s How to Lower Risk in Your Portfolio
Asset allocation is the most essential factor in building a high performing portfolio. Paying attention to the risk of each asset class allows you to create a portfolio that can beat the market in good times as well as bad.
6. Don’t Confuse “Risk” with “Volatility” – It Could Have Dire Consequences on Your Investments
A large number of investment professionals confuse risk and volatility to the point where the terms are treated as being virtually synonymous. This has resulted in the flawed investment principle that reducing volatility will (and must) reduce risk. Such thinking is deeply misguided, and following it has dire consequences for investors. Let me explain more about what risk and volatility are and are not.
7. Here’s How To Set Up A Risk Averse Retirement Plan
One of the most difficult challenges of transitioning to retirement from the working world is a complete change in mindset with regards to an investment portfolio. You go from being a saver to a spender. There’s no future income or nearly as much time to soften the blow from bear markets. Growth is still necessary but you have to be cognizant of the fact that you’ll need to protect some of your assets for spending purposes. Here’s an interesting case study in how to approach this change in mindset.
8. Risk Averse? Here’s a Better Strategy Than Having Just Cash
Many investors with little appetite for risk think cash is the safest asset class but there’s a much better way to control risk than keeping all your money in cash or bonds: diversifying through a modest addition of stock to the mix. How much should be in stocks? Read on!
9. Look At These Curves & Make Educated Investment Decisions
Instead of obsessing over the timing of eventual interest rate hikes to contain inflation, it may be more useful observing the slope of the yield curve to see where the economy and the stock market are headed.
10. Trying to Time the Market Is a Fool’s Errand – Here’s Proof
Pullbacks happen, and usually the market recovers, so trying to time the market is probably a fool’s errand – and a money loser.
11. Apply These 6 Military Strategies To the Way You Invest & Win
I was re-reading Art of War recently, and I couldn’t help noticing how Sun Tzu’s approach to military strategy applies to investing. As he said 2,500 years ago, “he who knows them will be victorious; he who knows them not will fail.” Below are 6 quotes well worth applying as a result of the present financial chaos we find ourselves in.
12. A Stock’s Current P/E Is A Poor Indicator Of Future Performance – Here’s Proof
Just because stocks are expensive doesn’t mean investors should immediately cash out and prepare for imminent price declines. Why? Because elevated P/E levels are not that reliable in predicting potential market performance. Here’s the proof.
13. Hang In There! Panic Selling Is A Failing Strategy – Here’s Proof
Successful investors outperform by being patient and riding out the volatility. Losers panic and sell at what might appear to be the beginning of downturns. Losers make the mistake of thinking they can predict what will happen next and unsuccessfully time the market. Here’s proof that Panic Selling Is A Failing Strategy.
14. Predicting What the Stock Market Will Do Is Impossible – Here’s More Proof
Predicting what the stock market will do in the next 12 months is tantamount to predicting coin flips. Here’s more proof that past stock market performance tells you nothing about future results — literally nothing.
15. Biased Investors Are Losers! Does That Include You?
As history all too clearly shows, investors always do the “opposite” of what they should when it comes to investing their own money. They “buy high” as the emotion of “greed” overtakes logic and “sell low” as “fear” impairs the decision making process. Here are 5 biases that will keep you from achieving your long term investment goals.
16. Investment Truths: “Does a 10% Loss + a 10% Gain Put You Back to Even?” & 29 Other Insights
Here’s my list of the most common errors investors make and some related maxims.
17. The “Gone Fishin’” Portfolio Is the Ultimate Investment Approach! Here’s Why
I can’t predict the future, and neither can you. That’s why I created the Gone Fishin’ Portfolio. It’s breathtakingly simple, works like a charm and has beaten the S&P 500 every year, while taking much less risk than being fully invested in stocks.