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The Volatility Of The Stockmarket

This article is reproduced with permission from
Normandy Advisory Services Sdn. Bhd (Licensed Investment Advisor)
15th Floor Menara Multi-Purpose, No 8 Jalan Munshi Abdullah, 50100 Kuala Lumpur
Tel : 03 - 469 5560 Fax : 03 - 294 5561


This article is copyright and no part of it may be reproduced in any form without the prior consent of Normandy Advisory Services


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- Do not follow the crowd
Historically, the public tends to be wrong. Do not be easily influenced by the people around you. A successful trader blocks out other opinions particularly when the market turns unexpectedly. If you change your trading decisions too often, you will find later that your own opinion would have been more profitable. For example, what will happen to Mary if she had listened to her remisier and rushed in for "bargain-hunting" amid the huge fallout of the KLCI during the first few days after the release of the Bank Negara's new guidelines to curb asset inflation.

- Stay out completely when you are not sure

Stay out completely if there is a sudden change in the market sentiment. It is most likely that you will have to reshuffle your original investment portfolio. But you should not attempt to jump into the market immediately especially when the market sentiment is deteriorating and has yet to show signs of stabilizing. The fact is that you could get better bargains if you had patience and discipline during the recent KLSE downfall.

- Cut losses quickly

When the market is moving against your trading position, liquidate the position quickly. Get out early when you are wrong. It takes a great deal of discipline to cut losses indeed. For example if you had picked up a stock at RM6.50 on the belief that the price has reached its rock bottom during the recent downfall, then you should have liquidated your position when the stock started to drop by another ringgit on continuous selling pressure. You would be relieved to find that the price now is trading at RM 4.00.

- Never add to a losing position when the market is sliding

Never add additional weighting to any existing losing position. In a market where its sentiment is very weak, one should not buy in unnecessarily which can lead to overtrading. The technique of "average buying" as favoured by some traders to minimize losses will more likely add pressure to your existing portfolio.

- Do not sit and hope

Hoping that a market will turn in your favour will only worsen the situation. Although greed and fear are part and parcel of any investment game, you should separate trading from your emotions. Rather than hoping for the best, you should look for other market clues such as the trading volume and etc.

- Use stop loss orders

In order to anticipate drastic market downfall, you can use stop loss order to prevent excessive losses in times of panic.

Although it seems to be electrifying to trade directly in the local stockmarket, you must not forget the level of risk involved. You should learn how to overcome your own weaknesses at least to prevent greater losses from the short-term market volatility.

All in all, you should look long-term if you want to create wealth for your future. You should not be disheartened by the short-term losses that you incur, but look beyond that. In addition, you should also not to be astonished by the short-term gains that you make in the short-term. What is the probability that the RM30,000 you make on a day will guarantee your future?

In conclusion, there are many other important list of things or techniques that a disciplined trader should do when investing in the local stockmarket. What Normandy Research has illustrated are a few pointers for the benefit of our readers.

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Reproduced with permission from Normandy Services Sdn Bhd, Email:nassb@po.jaring.my Tel:603-4695560 Fax:603-2945561