We used to own a stake in New Oriental Education & Tech Group (NYSE:EDU), a Chinese education company that drew regulatory ire in 2012 for suspect reporting practices. When EDU’s market value was cut in half, I decided to salvage what our position instead of holding the shares until more information was available. By September 2013, 14 months after liquidation, shares of EDU had fully recovered; since fall 2013, EDU has appreciated 81 percent (as of 16 December 2016).

In this anecdote, my reactionary trading was a clear detriment to my family. Luckily, I had only invested a very small stake in EDU, and through this experience I have become a better investor. Similar to my five year-old son learning to not run on ice: painful first-hand experiences with abrupt crashes are very informative. If you sell during a market crash or buy in the midst of furious bubble, lessons from reactionary trading can be painful.

Diversify

When compared to the overall market, an individual stock is much more likely to experience a material change in value. To avoid significant volatility, invest in a well-diversified ETF or mutual fund instead of individual stocks. You will avoid reactionary trading because a less volatile portfolio will generate fewer events to which you are enticed to react.

Put Your Portfolio on Autopilot

Remove judgement from all trading decisions by scheduling preauthorized contributions to a low-cost mutual fund or periodically purchase shares of low-cost ETF. Regular investments neutralize reactionary trading by systematically removing the opportunity to trade based on market fluctuations. Only sell to rebalance your portfolio or convert capital into money (near the end of your investing time horizon). Prevent yourself from selling and your regular investments will become opportunities to lower your cost basis.

Limit Your Exposure to News and Portfolio Fluctuation

Over long periods of time the stock market is more likely increase; so if we reduce the frequency with which we check our account balance, we are more likely to observe growth in our portfolio’s value. If you intently track your portfolio throughout the day, you may look for meaning in every market move and suffer with every decline. More importantly, if we avoid reconciling our portfolio’s volatility with current events we will not be enticed into reactionary trades.

In summary, had we owned more diversified positions, put the portfolio on autopilot, and limited my exposure to news and portfolio the loss associated with the EDU crash would have been avoided. Either learn from my mistake and use employ the above strategies, or you may make your own detrimental trades in reaction to volatility.