- 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
- 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
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.