When markets are volatile, it’s easy to allow “fear and greed” to drive your decision-making — most likely to your own detriment.
Investment advisor Martin Pring says a better response to market upheavals is to be less impulsive and more analytical. He argues that you have a better chance of coming out ahead by applying the age-old virtues of common sense, patience, and discipline.

As soon as money is committed to a financial asset, so too is emotion. Any biases present before the money was placed on the table are greatly increased once the investment has been made. If none were present before, they certainly will appear now. However hard we try, certain prejudices are bound to creep in. A successful investor realizes this and knows he must try to maintain psychological balance through self-control.

An investor or trader faces a constant bombardment of emotional stimuli. News, gossip, and sharp changes in prices can set the nerves quivering like the filament in an incandescent lamp unless properly controlled. These outside influences cause the emotions to shift between the two extremes of fear and greed. Once you lose your mental balance, even for an instant, your will and reasoning will be swept away, and you will find yourself acting as the vast majority of market participants act — on impulse.

To counteract this tendency, you must be as objective as possible. Remember: prices in financial markets are determined by the attitude of investors to the emerging economic and financial environment rather than by the environment itself. This means price fluctuations will be determined by the hopes, fears, and expectations of the crowd. Your job is to try as much as possible to ignore those around you and form an independent opinion while making a genuine attempt to overcome your own prejudices.

The markets are driven by crowd emotions. Nothing you can do will change that; it is a fact you have to accept. Despite this, becoming a successful investor demands that you overcome your mental deficiencies and rise above the crowd. As a natural result, you will find yourself outside the consensus.

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