Each educated investor possesses an entry and exit strategy. They determine beforehand when to start and when to finish. With a solid plan, it becomes easier to stay focused and not let emotions or opinions affect their decisions. They make up their minds before the action commences, not in the midst of it.
It is quite bothersome when the driver ahead of me takes an excessive amount of time to decide whether to go straight or make a turn at a junction. This not only leads to a traffic jam but also creates an unfair situation for other road users. Similarly, investing without a plan can have a similar consequence. The plan doesn’t have to be complex; in fact, the simpler it is, the easier it becomes to follow.
The need for an entry and exit strategy becomes more glaring when you trade in the online forex market. The action is so fast-paced that if you do not make up your mind upfront about what your strategy is going to be, you can lose a lot of money before you know what hit you.
Emotions play a significant role in shaping our humanity. If we allow them to control us, certain emotions, such as fear, can have a crippling effect. Fear and greed are the prevailing emotions in almost all markets. During a downturn like the one we are currently experiencing, fear takes over and people tend to seek safety and hold onto their money. Conversely, during a boom, greed becomes dominant and people rush in to seize opportunities, often without carefully considering the consequences of their actions.
Have you considered formulating an investment plan? It is crucial to establish both an entry and exit strategy. Unfortunately, many individuals lack such plans and simply follow the crowd, adopting the actions of those around them.
Are you delaying your investment plans until prices show an upward trend?
This is the common behavior of an average individual. An economic downturn or market crash triggers fear, leading to a rush for safety – moving away from low prices. This indicates that low prices do not align with your entry strategy. Ideally, you prefer prices to increase to a certain level before entering the market. This peculiar psychology is most evident in investing, particularly in the stock market. Conversely, when it comes to shopping, low prices are highly welcomed. The mention of sales is like music to our ears. Crowd control is essential on Black Fridays as individuals literally compete for discounted items. Low prices act as a signal to buy, while high prices drive customers away. The reason why individuals flee when asset prices crash is a topic that requires further investigation.
One of the rationales behind this behavior is the requirement for substantial evidence indicating a sustainable recovery in prices before individuals decide to enter the market. The fear of incurring financial losses prevents them from entering prematurely, as they do not want to risk investing when prices are on the decline. Instead, they adopt a cautious approach and closely observe the market until they are fully convinced that prices will continue to rise. Interestingly, this often occurs when prices are already nearing their peak. Consequently, they end up entering the market when prices are already high. Although this decision may appear counterintuitive when considering the overall scenario, the fear of financial loss can lead individuals to make peculiar choices. In some cases, individuals even delay initiating their business until the economy demonstrates signs of recovery. In the realm of real estate, this fear is evident in the practice of waiting for property prices to appreciate before making an investment. This exemplifies the impact of fear on decision-making.
Financial loss is inevitable
In the realm of finance and investing, experiencing losses is inevitable and can actually be more beneficial than always coming out on top. Failure serves as a valuable teacher, providing important lessons that can lead to future success. Those who are willing to learn from their failures are more likely to thrive in the competitive world of investments.
Defeat is an integral part of the game. Every successful entrepreneur has faced failure at some point in their journey. This is why it is essential to establish a financial security plan before delving into risky investments. While building your financial reserves, including fixed-income investments, it is still possible to take risks. Having a safety net in place reduces the fear of failure, enabling you to pursue opportunities with confidence. Life is all about taking risks, whether it’s commuting to work or attending special events. If we are already taking risks with our lives, why do we hesitate to take financial risks? The age-old question remains: what holds more significance, money or life?
Develop a plan and adhere to it.
Before you invest, you need to have a plan and then stick to it. The economy goes up and down in cycles. Each phase has risks and opportunities. If your plan is to go in when prices are low, then the window of opportunity is still wide open. The window does not remain open forever. When the market crashes, you can pick up assets at bargain prices. This boosts your returns on investment in terms of income and capital gain (when the market rebounds). If your plan is to enter at a higher price, that is fine if you know what you are doing. There is no one right answer so far as what you are doing is working for you.
Initiating a business during challenging times can have its perks, just like overcoming a tough childhood can pave the way for success. Adversity can actually be an advantage. Even if there is a shortage of cash, it doesn’t mean money has disappeared from the country – it has just changed hands. Money is still present within our borders. Similarly, heavy rains causing flooding in one area doesn’t mean it’s raining everywhere. There are still opportunities to earn money if we maintain focus and take the right steps to attract income.
The best time to invest is based on your strategy of entering and exiting the market. If you plan to buy low and sell high, this could be the perfect opportunity.