Keeping Your Calm
Think before reacting. If you insult someone without taking a moment to gather your wits, you'll probably just be plain defensive or come across as confused. When you insult them, take a small amount of time to think about it. Not too much or they'll catch on, but a long pause is just fine. If you're short on ideas use a previous insult and modify it. Chances are, they won't catch it. Take a few deep breaths (draw your breath in noisily if it helps) concentrate on what needs to be said and draw on your pre-rehearsed comebacks (see step 2).
Create some insults in your free time. Think up appropriate ways to insult the different people who might insult you. If you have a starting point, the rest will come easier.
Ignore the person(s). If you don't take their insults seriously, they won't be able to insult you seriously.
Being Cool
Don't react. Instead, just smile and laugh it off. It will make the person wonder what they're doing wrong.
Don't swear or resort to "Your mom!" or any other variants such as "That's what she said!" You can use "your mom" jokes to make them be quiet when they are coming up with a comeback to stop them, but they're not creative and people have become used to ignoring them.
Revert the insult to the one insulting you. If you have a point of pride, and they tried to hit it, realize that it is because of their insecurities. If you then talk about how their insult would apply to them more than you, they are removed of this crucial power and you have pointed out that which is evident––they're projecting their insecurities onto you.
Don't get mad. Find their points of pride and insult them on it. If they come up with a comeback, chuckle a bit then say, "It's a bit too late for sarcasm, but thank you." You must remain grounded in your apparent idea that they were complimenting you, they won't believe it, but it will make it harder for them to insult you effectively.
Using the Other Person's Frustration
Interrupt them when they insult you. If you stop them from insulting you, they will get frustrated and try harder. If so, interrupt them and pick apart their insults.
Accept that you won. If they are frustrated, you have essentially won. Frustration is the equivalent of an armbar in martial arts, you haven't won yet, but you're about to. This point is critical. You have the choice to either apologize at this point or continue and send them into a swearing or crying wreck. You need to feel when they're frustrated.
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