There are 4 human emotions that have and always will control what goes on in the stock market:
Hope
Holding losing investments, hoping they will come back up so that you can break even. Hoping that your losing investment will come back because you are a long term investor and you have time. The time that you are holding that investment hoping it will eventually come back is wasted time. You could have sold the stock after a small loss and used that money towards another purchase that would have resulted in a potential big gain.
Fear
Many investors let fear control how they make their investment decisions. Fearful that the unrealized gain they have will be gone tomorrow so they sell at the first sign of weakness. Afraid that the market will leave them behind, so they feel they have to pick the bottom or get in before an uptrend has confirmed itself. Afraid of losing their hard earned capital and hesitating to buy after a vicious bear market, when they should be listening to what the market is telling them and buying.
Pride
Not admitting when you are wrong. In investing, you are going to make some wrong decisions. Nobody is right 100% of the time. You have to be able to admit you made a bad investment and get out early enough to limit your losses. However, this is hard. No one wants to admit they are wrong and when this happens in investing, you end up with an investment that has lost you a lot of money.
Greed
After a couple of consecutive winning trades, investors start feeling invincible, like they’ve got it all figured out. This is greed creeping in. They start entering other trades that they might not have before because now they think they know more than the market. The investment moves just like they thought it was and they get greedy and add on more money. It moves past the target price but greed has overtaken them and they hold on “knowing” that it’s going to continue upwards. The investment then starts coming back down but they hold on “knowing” this is just a short correction. Soon the big gain has turned into a loss and Fear takes over. This is the Greed and Fear cycle that is always present in the market.
Once you can eliminate these emotions from your investment decisions, you are on your way to becoming a successful investor. This is where the KT Number comes into play. It removes all emotions from your investment decisions. If the KT Number says buy, you buy. When the KT Number says sell, you sell. It’s that simple. No holding on one more day because you are greedy. No selling after a 2 point gain because you are fearful the market is going to turn down tomorrow. No hoping that a losing investment comes back to even because you don’t want to take the 40% loss. No swallowing your pride because you were wrong once again in your investment decision. Let the KT Number guide you on when to get in and out of the market.