Efficient markets are based on the assumption that rational people enter transactions with the intent to maximize gains and minimize losses. While this theory is sound, most investors are not the purely rational robots that efficient markets rely upon. Instead, emotions often cloud our decision-making and prevent us from acting in a rational manner.

Knowing we can never conquer our inherent emotional biases, we should seek to understand the range of emotions we may experience as investors and how it affects our interactions with the market. A common market psychology cycle exists that shines light on how emotions evolve and the effect they have on our decisions. By understanding the stages of this cycle, we can tame the emotional roller coaster. The fourteen stages are:

1. Optimism – A positive outlook encourages us about the future, leading us to buy stocks.
2. Excitement – Having seen some of our initial ideas work, we begin considering what our market success could allow us to accomplish.
3. Thrill – At this point we investors cannot believe our success and begin to comment on how smart we are.
4. Euphoria – This marks the point of maximum financial risk. Having seen every decision result in quick, easy profits, we begin to ignore risk and expect every trade to become profitable.
5. Anxiety – For the first time the market moves against us. Having never stared at unrealized losses, we tell ourselves we are long-term investors and that all our ideas will eventually work.
6. Denial – When markets have not rebounded, yet we do not know how to respond, we begin denying either that we made poor choices or that things will not improve shortly.
7. Fear – The market realities become confusing. We believe the stocks we own will never move in our favor.
8. Desperation – Not knowing how to act, we grasp at any idea that will allow us to get back to breakeven.
9. Panic – Having exhausted all ideas, we are at a loss for what to do next.
10. Capitulation – Deciding our portfolio will never increase again, we sell all our stocks to avoid any future losses.
11. Despondency – After exiting the markets we do not want to buy stocks ever again. This often marks the moment of greatest financial opportunity.
12. Depression – Not knowing how we could be so foolish, we are left trying to understand our actions.
13. Hope – Eventually we return to the realization that markets move in cycles, and we begin looking for our next opportunity.
14. Relief – Having bought a stock that turned profitable, we renew our faith that there is a future in investing.

1. As a new investor, be prepared to take some small losses.
2. Always cut your losses at 8% below your purchase price.
3. Persistence is key when learning to invest. Don’t get discouraged.
4. Learning to invest doesn’t happen overnight. It takes time and effort to become successful at it.
5. When getting started, it is important that you pick the right full service or discount brokerage. If you use a broker, make sure he or she has a good track record.
6. As a beginner, set up a cash account, not a margin account.
7. It only takes Rs.25,000 to get started. Experience is a great teacher.
8. Avoid more volatile types of investments, such as futures, options, and foreign stocks.
9. Concentrate on a few, high-quality stocks. There’s no need to own twenty or more stocks.
10. Don’t get emotionally involved with your stocks. Follow a set of buying and selling rules, and don’t let your emotions change your mind.
11. Don’t buy a stock under Rs.15 a share. The best companies that are leaders in their fields simply do not come at Rs.15 or Rs.20 per share.
12. Learning from the best stock market winners can guide you to tomorrow’s leaders. (navigate our stock chart examples archives)
13. Always do a post-analysis of your stock market trades so that you can learn from your successes and mistakes.
14. A combination of fundamental and technical investment styles is essential to picking winning stocks.
15. Fundamental analysis looks at a company’s earnings, earnings growth, sales, profit margins, and return on equity among other things. It helps narrow down your choices so that you are only dealing with quality stocks.
16. Technical analysis involves learning to read a stock’s price and volume chart and timing your decisions properly.
17. To make big money, you have got to buy the very best companies at the right time.
18. Strong sales and earnings are amongst the most important characteristics of winning stocks.
19. Buying a stock as it is coming out of a price consolidation area or base is crucial to making large gains.
20. Always pick stocks from the leading industry groups or sectors. The majority of past market leaders were in the top industry groups and sectors.
21. Many big winning stocks come from sectors such as drugs and medical, computers, communications technology, software, specialty retail, and leisure and entertainment.
22. Volume is the actual number of shares traded by a stock .
23. Stocks never go up by accident. There must be large buying, typically from big investors such as mutual funds and pension funds.
24. In studying the greatest stock market winners over the past 45 years, bases formed just before the stock broke out into new high ground in price and then went on to make their biggest gains.
25. The most common pattern is a “cup with handle” names so because it resembles a coffee cup when viewed from the side.
26. The optimal buying point of any stock is the “pivot point”.
27. On the day a stock breaks out, volume should increase by 50% or more above its average.
28. A decrease in price on decreased volume indicates no significant selling.
29. Replace the old adage, “buy low and sell high” with “buy high and sell a lot higher.”
30. You want to buy a stock at its pivot point. Don’t chase a stock up more than 5% past its pivot.
31. Chart price and volume action frequently can help you recognize when a stock has reached its top and should be sold.
32. History always repeats itself in the stock market.
33. Most big stock market leaders breaking out of a sound base will go up 20% in eight weeks or less from the pivot point. Never sell a stock that does this in four weeks or less, you may have a big winner.
34. The general market is represented by leading market indices like Nifty and S&T500. Tracking the general market is key because most stocks follow the trend of the general market.
35. Ignore personal opinions about the market.
36. A typical bear market will decline 20% to 25% from its peak price. A negative political or economic environment could cause a more severe decline.
37. Knowing when to both buy a sell a stock is key for success.
38. three out of four stocks , regardless of how “good’ will eventually follow the trend of the overall market.
39. After four or five days of distribution within a two to three week period, the general market will normally trend downwards.
40. Bear markets create fear and uncertainty. When stocks hit bottom and turn up to begin the next bull market loaded with opportunities, most people simply don’t believe it.
41. At some point on the way down, the indices will attempt to rebound or rally. A rally is an attempt by a stock or the general market to turn up and advance in price after a period of decline.
42. Most technical market indicators are of little value. Psychological indicators like the Put-Call ratio can help confirm changes in the market’s direction.
43. Once you determine you are operating in an uptrending general market, you need to pick superior stocks.
44. Potential winners will have strong earnings and sales growth, increasing profit margins and high return on equity (17% or more). They should also be in a leading industry group.
45. Using a chart service can help you determine if the timing is right to buy a stock.
46. There are two basic types of investors: growth stock investors and value investors.
47. Growth investors seek companies with strong earnings and sales growth, superior profit margins, and a return on equity of over 17%.
48. Value investors search for stocks that are undervalued and have low P/E ratios.
49. When starting to invest, keep it simple. Only invest in domestic stocks or mutual funds.
50. You get what you pay for in the market. Low-priced stocks are usually cheap for a good reason.
51. Options are risky because investors do not only have to be right about the direction of the stock but also about the time frame in which they believe the price will go up or down.
52. Futures, due to their highly speculative nature, should be attempted only be people with several years of successful investment experience.
53. Wide diversification and asset allocation are not necessary. Concentrate your eggs in fewer basket, know them well and watch them carefully.
54. If you have less than Rs.50,000 to invest, only own one or two stocks. If you have Rs.1,00,000-two or three stocks; Rs.1,50,000-three or four stocks; Rs.50,000-four or five stocks; and, Rs.2,00,000 or more-own no more than six stocks.
55. If you already own the maximum number of stocks buy want to add a new stock to your portfolio, force yourself to sell the least profitable stock to get money for the new name.
56. When purchasing a stock, only buy half of your desired position at the initial buy point. Buy a small amount more if the price rises 2% or 3% above your first buy. Average up in price, never down.
57. Don’t let yourself lose money after you already had a reasonable profit.
58. 40% of stocks will pull back to their initial buy point-sometimes on big volume- for one or two days. Don’t let this shake you out of your stock.
59. stock if its Sell a  earnings per share shows a major deceleration in growth for two quarters in a row.
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