Taking a proactive approach towards managing money builds on knowing what you want. The ‘why' part of your portfolio is what will allow you to take a proactive approach.  Let's look at an example of how this plays out. First, you have to start with the ‘why'. In our past example we used retirement and a 10% return as the goal. Applying this is how we take a proactive approach to trading. We start with scanning for investments to place in our portfolio based on a specific criteria or discipline. For this example let's keep it simple; using a base breaking out into an uptrend. This entails scanning for ETFs that are breaking out of consolidation (base) into an uptrend. When we find them we place them on a watch list and wait until they meet our strategy and discipline. Once they meet our strategy we put them into our portfolio. Prior to the purchase we define the entry, the stop, and the target. Then we follow our disciplined strategy until we exit the position. This, very simply put, is a proactive approach to investing.

On the other side we have reactive investing which is driven by emotions of what is happening in the market, the media, or what others say. This method of investing reacts to news and events surrounding our investment(s) and we react on hearsay or emotions in either the buying or selling. This is too often the case that describes the investment process when I speak with investors. Reactive investing generally results in losses or not capturing the full potential upside of the asset in which we invested. Needless to say it is a very frustrating process and I can see why investors give up on this methodology eventually.

For our purposes in this exercise as an investor, we must first define the process for getting in (buying), getting out (selling) and what we want (target). If you will practice this proactive approach to investing you will find yourself being more successful on the upside and limiting your losses on the downside. This discipline leads to a successful investment strategy based on your goals.

This is part 3 of a daily educational series Jim will provide for the next few weeks, exclusively here on Greenfaucet.  Click here to read part 2 [1]