Many people treat the stock market more like a hobby than a business. This is perfectly OK as long as they’re playing with small amounts of money and don’t expect much in return. However, there are others who trade with serious money for consistent returns at calculated risks. The wiser approach for this latter group of investors would be to treat their stock market activities more like a business and less on the basis of fun and games.
It’s often said that “patience is a virtue” and this is certainly true when it comes to trading the stock market. That’s because the market moves in a certain rhythm, where it ebbs and flows, chews up time, and sets itself up for the next important move. Patient investors fully understand that they must pick their spots wisely and avoid the mistake of trading aggressively at unnecessary high risk. At the same time, investors must not succumb to excessive or persistent fear that causes them to miss out on good trading opportunities.
Savvy investors don’t try to force the stock market to make money for them with the inner craving for “action.” Those who do give into this craving fail to recognize that the market operates on its own time table – oscillating from undervalued to overvalued in erratic movements. Therefore, the need for action actually serves as a distraction, which causes a person to play their hand incorrectly. The stock market doesn’t really care about your personal situation, even though you may need money to make house payments, pay off debts, or meet the special demands of your family,
The reality is that if you’re impatient, crave action, and trade all of the time, you’re destined to lose. It’s true that it may be appropriate to stay in the market for a majority of the time with a part of your assets in investment grade, blue chip, dividend-paying, low volatility securities. Yet, it’s not wise to be fully invested at all times in the more speculative trading vehicles, those that comprise the play money portion of your asset allocation strategy.
But overall, a wise stock-market investor should treat their time away from the action in large cash positions as a constructive period. This is a time to reinvigorate your spirit, reassess past actions, refine your trading system, and reposition your asset allocation plan, as needed. Without a healthy break on the sidelines, an investor simply may not be ready to play the stock market at a high level when it’s time to get back into the game.
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“A successful trader is rational, analytical, able to control emotions, practical, and profit oriented.”
Monroe Trout