Title: How to Avoid Emotional Investing
Headings: How to Avoid Emotional Investing
How to Avoid Emotional Investing
Key Takeaways
Performance Chasing Can Cost You
Investor Behavior
Bull vs. Bear Markets
Bad Timing
Time-Tested Theory
Strategies to Take the Emotion Out of Investing
$6.2 Trillion
Frequently Asked Questions
Why are emotions so important to market psychology?
How can one measure the level of fear or greed in the stock market?
What are some trading strategies to keep emotions in check?
The Bottom Line

Content: How to Avoid Emotional Investing
Trading Skills & Essentials Trading Psychology
How to Avoid Emotional Investing
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Kristina Zucchi is an investment analyst and financial writer with 15+ years of experience managing portfolios and conducting equity research. Learn about our editorial policies
Kristina Zucchi
Updated Mar 24, 2021
Table of Contents
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Investor Behavior
Bull vs. Bear Markets
Bad Timing
Time-Tested Theory
Strategies to Take Emotion Out
Frequently Asked Questions
The Bottom Line
Active monitoring of a portfolio is important for navigating the changing tides of financial markets. Still, it is also essential for individual investors to manage the behavioral impulses of emotional buying and selling that can come from following the market's ups and downs. Indeed, investors seem to have a knack for piling into investments at market tops and selling at the bottoms because it is not uncommon to get entangled in media hype or fear, buying investments at peaks and selling during the valleys of the cycle. How can investors navigate volatile markets while also keeping an even keel and keeping a portfolio diversified for the best overall returns through all types of market environments? The key is to understand the motivations behind emotional investing and to avoid both euphoric and depressive investment traps that can lead to poor decision-making. Key Takeaways
Investing based on emotion (greed or fear) is the main reason why so many people are buying at market tops and selling at market bottoms. Underestimating risks associated with investments is one reason why investors sometimes make suboptimal decisions based on emotion. During periods of market volatility and rising interest rates, investors often move funds from riskier stocks and to lower-risk interest rate securities. Dollar-cost averaging and diversification are two approaches that investors can implement to make consistent decisions that are not driven by emotion.