Chapter Three - Intermediate Investing Techniques

Diversifying Your Investments The most important part of building a profitable investing portfolio is diversifying your investments. It's important to make sure you never put all of your money into only one item - if the item tanks, you lose out big time. If you have your money in several different types of items, however, you can lose money on one or two items and still have a net profit. The picture on the right is a sample of a diversified portfolio. I have a significant number of rares, Rune scimitars, Regen bracelets, and Gilded platelegs. I could have diversified my investments even more by investing in a food item as well, such as sharks or lobsters.

Profiting from a Price Crash

Every so often, an item drops exponentially - especially after a large price rise or a game update. Many people, trying to minimize their losses, try to sell the item at lowest - and nobody is willing to buy. After every major drop, there is a price bounce - usually about 1/10 to 1/5 of the way back up to the price before it started dropping.

Once we buy the item at the bottom, we have an extra weapon in our arsenal to help tell us when to sell.

After an item has a large drop in price, the bounce almost always slows a day or so after the daily average passes the 30-day average.

Using the same tactics as when investing in "wave" items that we learned last Chapter, we can predict when the item is bottomed-out by using the daily average line's slope. You can see the flattening daily average circled in red on the item graph to the right, a Saradomin sword.

Here, you can see the place where the daily average crosses the 20-day average marked by a red arrow (this is an old graph, today the line would represent the 30-day average). Shortly after it crosses this line, the "bounce" slows and begins to fall again.

Reading The Psychology of Price Fluctuations

Just like the real stock market, psychology plays a big part in extreme price shifts in the RuneScape economy. Psychology is a double-edged sword, there are two places where you see it's effects the most.

This cycle can continue for days or even weeks, and extreme amounts of money are made. As the price gets higher, however, cautious investors start to sell out to make sure they don't lose money when the item drops. The price rise slows, then stops, as more and more people try to sell... See next section to learn what happens next.

• Extreme Price Drops Extreme drops in price, likewise, involve everyone who owns the item in question. Once the initial drop begins, caused by an update or random fluctuation, everyone tries to sell. In a panic when their items are not bought, they begin to offer it for the lowest price. This, in turn, drags the item's price down like an anchor. As the price free-falls, investors watch carefully - and after it has dropped enough, begin to buy the items hoping for a bargain. This causes the price "bounce" we saw above.

Profiting From Buyer Psychology

If you buy or sell your items during the body of the rise and fall itself, you can often get a bonus because of these psychological effects - Sell rising item before it shows signs of reaching it's peak, and you're almost assured of getting the top price. If, you wait until the very peak to sell, however, you'll often find that it's even hard to sell the item for medium price. This is because the investors who watch the graphs know the item will soon drop, and the demand is lower.

Likewise, you can profit from the psychology of a price drop by buying the falling item before the brice bottoms out. You'll almost always be able to score the item for lowest price, and that often is a much better deal then buying for medium or highest once the price has bottomed out a day or so later.

Using these psychological tactics keeps you one step ahead of your competition - and in investing, one step is all it takes.