by Frank Sherosky

Created on: December 28, 2008

Staying cool in a hot stock market especially applies to a bear meltdown. Even if your 401-k turned into a 201-k, a mentor would guide you with the same advice, as if you were in a bull run. Being cool in any market demands you take charge of your trading. As an author and trader, here are my own 7 steps to investing coolness.

1) Realize you are ultimately responsible for all your profits and losses: That's right; you cannot blame your broker, the fund manager, the market or anyone else for losses, no more than you give them credit for your wins. It's all about you and your ability to read the market. Make your play and get the heck out before you ever lose.

2) Know the true nature of the stock market: The market does not care who you are, what you did, how educated you are, or how rich you may be. It has and will continue to humble those who fail to respect it. Ask any "Market Wizard." The market is simply an arena whereby a crowd gathers to trade shares in entities called companies. You cannot control it. It is always right in the end.

3) Be neither a bull nor a bear: Markets sway between the two; and so should you. Besides, you can make as much money on the bear side and in less time than in a bull market. Why? Bear market moves are based on fear and liquidation. So, learn to play the downside with bear ETFs or put options. If you cannot do that, then stay in cash until the temperament changes in your favor.

4) Know the trend bias: Failure to do this is the cause of most losses. Whether you have a long-term or short-term outlook, use a chart to read the direction. Fundamentals may give you that warm fuzzy that the future is bright, but a map tells you what the market thinks about that idea.

5) Choose to buy on pullbacks or breakouts: This depends on the speed and temperament of the market. There is a time to be scalper (buy on pullbacks) and a time to play momentum (buy on breakouts.)

6) Learn to place stops: No matter how good your system is, a stop is an admittance of respect. It is also a safety net when you're wrong (and you will be from time to time)

7) Continually educate yourself: I don't care how many degrees you have. They are irrelevant to the market's power. Learn fundamental analysis, but don't worship it. Learn technical analysis, but use stops in case your interpretation is wrong. And read the classics and those books that contribute to your trading psychology Market Wizards, Awaken Your Speculator Mind, Forecasting Financial Markets and others.

Finally, trust yourself. That's right. Trust that you will always do the right thing, what's necessary to protect your wealth. Self trust is what makes you cool; and experience with education will build that trust. If you cannot say or write that with all honesty, then you are not ready to commit to trade. May you trade well!

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