It’s a place countless exchange traded fund (ETF) investors have found themselves at one time or another: buying in a panic. Many investors did it in the most recent market rally after it became increasingly difficult to sit out the ever-growing gains off the market low.

Panic buying happens when you feel like you’re missing a big rally.  To make up for lost performance, your purchases get more aggressive than they ordinarily would, explains  Joshua M. Brown for The Reformed Broker.

Here are Brown’s five stages of panic buying in the current market rally, compiled from statements made by investors he knows:

1. Denial (Early April): Investors will say things like, “It’s just another bear market rally.” Or “Wait until X, Y or Z happens…that will kill the rally dead.”
2. Anger (Mid April): Sectors investors thought were done for begin to rally on less-than-expected losses, surprising and angering them.
3. Bargaining (May-June): Investors begin considering taking some positions if they would only just back off a few percentage points.
4. Depression ( July): Investors begin to feel upset and sad that they missed their chance to get in, while cursing those who did get in early.
5. Acceptance (early August): Investors succumb to the lure of the rally and get in at any cost.

Panicking is human, and we’ve all been there. The easiest way to avoid a panic is to have a strategy for entry. You may not always buy in at the start of a long-term uptrend, but by looking at signals in the market and buying based on them, you give yourself the opportunity.

At ETF Trends, we use the 200 day-moving-average and follow market trends.

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Tags: ETF 101, Trend Following