Everyone has tips and tricks for being a smarter, wiser investor when it comes to exchange traded funds (ETFs), stocks and other tools of investing. But most people may agree: the one single thing you can do to become a better trader is to learn to get a handle on your emotions and not let them lead you astray.
Of course, becoming emotionally unavailable to anything you remotely care about is easier said than done. It can be all too easy to take a position, see it do well, then suddenly falter. At that point, many investors realize they’ve gotten attached to this holding and begin to conjure reasons why it can’t be sold at the correct time. But how can you stop this behavior?
- Make a list of reasons for investing and write them down. When you buy a stock, write down the reasons why you’d sell and post it somewhere near your computer. This makes it tougher to go against yourself when the urge hits.
- Set up alerts. Having your inbox light up with a sell alert you set previously will help push you in the right direction. Much like a personal trainer at the gym, pushing you and reminding you of what you set out to do, an alert can serve the same purpose.
- Get support from friends. If you’re comfortable, tell your friends and family why you are investing, and then let them know when you are going to buy or sell. They can help remind you of your original intent.
- Do an annual portfolio review. Take a look at every ETF and ask yourself why you’re still holding it. If your answer sounds more like a justification than a legitimate reason, dump it.
- Brush up on your investment strategy. By doing your own research and forming a strategy, investing will become less emotional because you will have a simple and easy-to-use discipline that keeps your feelings in check. The ETF Trend Following Playbook is a good place to begin, and it will help clarify some of the details and get you on the right path to non-emotional investing.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.