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In other words, you think about the intermediate term or long term just as everyone else is getting caught in the short term. If you think about the intermediate term by asking, "What is likely to happen to this stock if I buy it now at this reduced price and hold it for two or three months?" anxiety is lessened. |
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You can also ask yourself, "Have the fundamentals of this stock changed at all so it is no longer worth owning?" One common trap when we are anxious is that we tend to get caught in overvaluing stock price alone. We forget why we bought a stock in the first place. |
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The psychological term for this shift is reframing. It is to take something out of one mental framework and shift it to another one. In this case, we extract ourselves from the short-term anxiety of the news by reframing the stock in the context of the future. |
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And yes, it is possible to buy too early and watch the price go down even further. Traders like to refer to this as, "catching a falling knife." This is where due diligence comes in. |
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If you have been closely following a stock and know good entry points based on past performance, you can jump in when there is "blood in the street" and feel more confident that you have bought at a good price. You price the possibility of a further drop into your thinking, so that you will not feel you made a mistake or "caught a falling knife" if in fact it goes lower. |
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Some traders suggest "getting your feet wot" by coming back into the market with a partial position so you can buy more should the stock drop any further. |
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It is easy to talk about being a contrarian and going against the crowd when everything is nice and secure. The test is being able to pull the trigger when everyone else is caught in anxiety and panic. But you must know the stock well, or your chances are not as good at being confident of your position. |
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One of the ways you can tell more seasoned investors is that they are less caught in the emotional whirlpool of short-term anxiety. They have been through it, to various degrees, many times before. They are therefore more able to pounce on dips in price and see them for the good buying opportunities that they are. |
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