Stay cool and learn from your losses

Emotion is the big threat.

We love talking about the wins. They are far better dinner party fodder. But we tend to gloss over the losses, never really wanting to admit our mistakes. Yet often the biggest lessons come from mistakes.

When investors lose money on the stock exchange it can almost always be traced back to bad decision making, poor discipline and ignoring the fundamentals of share trading.

And the one key factor to these mistakes is letting emotion take over. So let's look at some of the more common emotional mistakes you can learn from.

Trying to recoup losses by taking greater risks is a sure-fire way to lose even more money. While it can be tempting to take bigger risks to win back lost money, this becomes emotional trading and is a classic investment mistake. You need to accept that losses are inevitable and part of the education process.

Likewise, failing to adhere to a stop-loss position can lead to greater losses than necessary.

Everybody, including Warren Buffett, will make an incorrect call at some stage, or the market will move unexpectedly.

That is why you have a stop-loss, or predetermined price point at which a loss is accepted and you close a position, without letting your emotions take control.

Another common investing mistake can be letting profits turn into losses. Many traders will have a story about massive "paper profits" that soon dwindled to become losses. Usually it is because you have been mesmerised by one of the strongest investment emotions greed which has motivated you to hold onto the stock for too long, anticipating even higher gains.

You can avoid this mistake by putting in place a trailing stop loss. This is where a stop loss is raised in line with upward price movements allowing you to avoid the stock slipping back to the entry price or worse.

Another common mistake for investors is overtrading. You may feel miffed because you missed out on an opportunity or it may be that you have been unable to invest all of your capital.

Whatever the reason, you should not try to create an opportunity. Be patient; wait until the right opportunities which adhere to your investment objectives present themselves, and then make your move.