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Five Ways to Take Smart Risks in Uncertain Markets


It's easy to get lost and have losses in today's markets.


Editor's Note: Dr. Doug Hirschhorn is among the premier peak performance coaches on Wall Street and holds a PhD in Psychology, with a specialization in Sport Psychology. A regular contributor to CNBC, he currently hosts a weekly video blog for CNBC. Dr. Doug is the author of 8 Ways to Great: Peak Performance On The Job and In Your Life and co-author of The Trading Athlete.

At the present time, the market isn't clear which way it's going to go.

Are we headed toward another bull? Are we going to test new lows? Are we going to stay flattish for a while?

Truth is, people always speculate, but no one knows for sure what's going to happen -- that's why it's a market.

Here are five things you can do to take smart risk in uncertain situations:

1. Look Inside and Pay Attention to What You Feel

  • Our bodies are hardwired to sense things before we fully understand why.

  • Call it intuition or instinct or whatever you want -- we all have it.

  • The point is, in a game where uncertainty is the status quo, the best indicator you have is your gut. Trust it.

2. Trust the Markets

  • Have faith, yes faith, that the markets will continually present you with opportunities to make great trades.

  • If you trust this, then you won't rush into or out of trades because of fear.

3. Recognize Fear

  • Look for fear in the market's behavior (over selling, over buying).

  • Over selling means people are afraid to take big losses.

  • Over buying means people are afraid they're going to miss out on profits.

Once you know what it looks like, you want to:

  • Avoid it (if you're not in the market).

  • Ride it out (if you're already in the market).

  • Or fade it (if you're looking to get into the market).

4. Trade to Make Money, Not to be Right

  • If you want to be smart, teach at a university or write a book.

  • If you want to make money, do more of what the market is paying and less of what it's not.

5. Love to Take a Loss

  • Losses are your friend, not the enemy.

  • Losses, like profits, are a necessary and essential part of the trading game.

  • After all, even the best traders on the street have a winning percentage of about 50%, so relax.

Remember, trading is a game of probabilities, not perfection.

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No positions in stocks mentioned.

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