Over the last two weeks global financial markets have been driven by fear.

Fear is one of our most powerful emotions. So much so that supposedly sophisticated investors around the world have been caught in the panic which that fear has generated.

At times like these many investors lose their discipline and almost become emotionally attached to falling prices. People get attracted to the drama and lose all sense of rationality.

Instead we need to take a deep breath, step back and take the emotion out of it. No matter the state of the market, it’s important to stick to your individual strategy.

Your best strategies are always to get good advice and keep yourself well informed, but there are benefits in developing a strict investment strategy using specific disciplines or formulas.

Their biggest advantage is taking the “emotion” out of investing.

Records show these approaches can be helpful in minimising the effects of market swings providing they are properly followed.

But lets make it clear we’re not suggesting everyone rush off and start their own plans. Formula investing is just one of a number of ways of investing in the market which you should be aware of.

They are designed to average out the big gains and the big losses but be prepared to be disciplined, and invest time and effort into the operation.

The first major formula strategy is the percentage plan, with its emphasis on care in bull markets and courage in bear markets. Buy as prices rise and switch or sell as they fall.

How does it work?

First, decide what percentage of your investment portfolio should be in shares… 25 per cent, 50 per cent, 75 per cent… and how much in fixed interest and property.

Under this strategy, at appropriate time intervals (say, 6 months), you buy or sell shares to restore or maintain the ratio you have set, no matter what the price level the shares happens to be.

For instance, suppose you start off with $20,000 and decide to have 80 per cent in good quality shares and the remaining 20 per cent in fixed interest.

Six months later the sharemarket has risen and the portfolio is now worth $23,000. The shares are worth $19,000, approximately 83 per cent of the total. According to the plan, you must sell $600 worth of shares to reduce the holdings to $18,400, i.e. to the pre-determined 80 per cent of the total $23,000. The $600, less commissions, goes into fixed interest.

Likewise, if the market declines further over the next six months and the portfolio is worth only $18,000, with the shares valued at $14,000, you buy more shares. The shares are only 77 per cent of the total, so take $400 from the cash trust to bring the shares back to the 80 per cent mark.

The key is to follow the plan, however nervous or frightened you may be that the market could drop further.

With all formula plans, learn to accept that falling prices are a chance to invest more at lower prices to compensate for paper losses. It is not easy.

It can be the one percentage on the way up or down, or it can be varied. For example, sell when the value of the portfolio goes up by 25 per cent, buy when it drops by 20 per cent.

As a more conservative approach, the 10 per cent rule can be applied… sell a stock when the total value drops more than 10 per cent below its most recent high, and start buying again when the value rises to 10 per cent above the most recent low.

Some professionals wait for 30 or 60 days before giving the buy or sell order to confirm the trend.

So called “stop orders” can also be useful. When you reach a share selling point in a rising market, place stop orders to sell a few points below the current market level. Then, should the uptrend continue, you won't sell the shares too soon.

Dollar cost averaging is another widely used investment formula which invests fixed amounts of money and at fixed times. The rationale is the same amount of dollars will buy more shares at low prices than at high, but these plans really must be maintained over periods of years to be worthwhile.

The specific investment time intervals can be monthly, quarterly, half-yearly, or whatever best suits your savings schedule.

If you are wondering how to pick the "right" stocks to use in these formula investment plans, find a good broker or financial planner with whom you feel comfortable, and be prepared to do some homework. Read the finance pages for news on company results and prospects.