The Hindu Business Line : Trader's Corner

One of the basic tenets of technical analysis is that history repeats itself. Human behaviour, emotions, feelings and responses to a given situation have remained the same over ages.

Since stock markets are nothing but manifestation of the joint action of a number of human beings, we see history repeating itself over and over again in the stock market cycles.

It follows that the mistakes made by your grandfather in the stock market are now being made by you and your progeny will make them, too.

One of the common mistakes made by investors over the ages is following the herd blindly.

Psychology and sentiment have a large part to play in the stock markets. It is easy to be carried away by the hue and cry being raised all around about the prospects of the stock markets going to astronomical heights.

It is equally easy to succumb to panic as a doomsday scenario is painted of prices tumbling into an abyss.

The only way to maintain sanity is to step back and use your own head. Do your own reading and assess the situation with the inputs you have in your reach. If there is any action called for, take it.

This applies to calls on individual stocks as well as the overall market direction. Going with the herd can result in your getting caught in the stampede that always ensues at some point or the other.

Not following the herd does not mean that you have to take contrary calls. Taking contrarian calls has its pitfalls. The herd heads in the right direction most of the time.

But do keep your eyes open for early signs of danger lurking ahead and quit the herd when you think appropriate.

It is ultimately you who are responsible for your decisions. No one can care for your money as much as you yourself can.

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