Psychology of Investing

[tech/a]

Nisar.

Yeh seen it before and its a gem!! Could you private mail me the link as I have a few people I know who need to see that!!

Frankly Ive decided to stop procrastinating tommorow.
Its a good thing because I used to be indecisive but now Im not so sure.

Dont you find it strange that we are being told to expand our thinking yet we see shrinks when we have psychological difficulties!

 

[Bobby]

Nisar.

Yeh seen it before and its a gem!! Could you private mail me the link as I have a few people I know who need to see that!!!

Is Duc on that list?

 

[Julia]

I found the following site fascinating. Travis has many wise things to say: http://www.travismorien.com/FAQ/psychology.htm


Thanks for that link, Waysolid. Really interesting site.

Julia

 

[nizar]

I found the following site fascinating. Travis has many wise things to say: http://www.travismorien.com/FAQ/psychology.htm


Thanks for that link, Waysolid. Really interesting site.

Julia

Yeh that was interesting.

 

[matti_pacman]

very interesting thread!!

 

[tech/a]

The phsycology of the market participants can be seen in price action.
To such a degree that those who can read it well can profit well from it.

Volume
Bar analysis
Price Ranges (ATR)
Breakouts
Consolidation
Patterns (Particularly small patterns within a move).
Gaps

All powerful tools to become familiar in reading.
Not to mention Elliot/fibbonacci and Steidlmayer (Market profile)

 

[stevo]

Psycology - I can't even spell the word and it's never made me any money!

Personally I think that it's an over-rated area. There are other areas that I would focus on first, like trading systems and decision making strategies. There is nothing magic about psychology, but I am interested in why people fail - stuff like behavioural finance is worth looking at.

http://en.wikipedia.org/wiki/Behavioral_economics

I love the way economists use the idea of the "rational being" making rational decisions - sort of like a benchmark person. It's pretty obvious that when it comes to trading rational behaviour can easily go out the window.

Also - have you ever noticed how the fear of a loss can be greater than the desire to make a gain? A $10,000 loss hits harder than a $10,000 gain. Maybe it's just me! Where's the couch!

Stevo

 

[nizar]

Also - have you ever noticed how the fear of a loss can be greater than the desire to make a gain?

Yep.
This is exactly why fear moves the share price much faster than greed.

But you cant trade like this. Losses are part of the game. If you cant accept this then you should be trading (yet?).

 

[It's Snake Pliskin]

Psycology - I can't even spell the word and it's never made me any money!

Personally I think that it's an over-rated area.

Also - have you ever noticed how the fear of a loss can be greater than the desire to make a gain? A $10,000 loss hits harder than a $10,000 gain. Maybe it's just me! Where's the couch!
Stevo

Most would risk money on a loss than a win due to that fear of a loss.

 

[insider]

I've always said that you should have something better to do than stock market... tha way you not controlled by it... For me it was always school and for school it was always chicks and for chicks it was stocks and for stocks it was school and for school it was always chicks and for chicks it was stocks and so on

 

[nizar]

I've always said that you should have something better to do than stock market... tha way you not controlled by it... For me it was always school and for school it was always chicks and for chicks it was stocks and for stocks it was school and for school it was always chicks and for chicks it was stocks and so on

 

[insider]

I was referring to getting over losses.

 

[stevo]

Yep.
This is exactly why fear moves the share price much faster than greed.

But you cant trade like this. Losses are part of the game. If you cant accept this then you should be trading (yet?).

I am yet to be convinced that greed is less of a driver of share price than fear!

I know I won't get the same sort of "buzz" from a $50,000 profit as I do from a $50,000 loss! Fortunately I haven't had a $50,000 loss yet! I am sure that most people would feel the same.

A trader's confidence is often higher than their trading ability. There is a belief that they have an innate ability to trade successfully even without a strategy or knowledge - just gut feel. Since they are a trader and they must trade to be worthy of the name they overtrade, taking profits early to "lock them in" and stick the mistakes in the bottom drawer because they are fundamentally a good buy!

But trading is generally not an innate skill. Fear and greed should have little to do with the process of successful trading, along with procrastination.

 

[It's Snake Pliskin]

taking profits early to "lock them in" and stick the mistakes in the bottom drawer because they are fundamentally a good buy!

Stevo,
It is this comment that is so true. Most would prefer to risk at losing than winning - to use such terminology.

Lock in early, small profits, but hang on to big losses until the pain is too much.
So greed probably does drive it more than fear

 

[Nick Radge]

Stevo! My, have we come a long way, and I say that with the upmost respect. I see someone who is 100% comfortable in knowing what he is doing and why he's doing it. Someone who knows where he's at and what it will bring if he allows it. Agree? It's a good place to be, right?

The problem is that only a few get to where you are at and until they do, then psychology is the major issue. The psychology is why they aren't there yet. The psychology is everything about why they are not there.

And here is a tip; you can't make people get there. They need to travel that journey themselves - perhaps with your kind guidance they can find that switch though.

 

[jammin]

Found a nice chart on psychology of the masses.

Nizar, that is a classic. I will to incorporate this chart into my trading rules, so as to check if I am making decisions in the same way. I must admit to having a few looooooooooong term investments in my porfolio.

 

[hongwong]

This is a funny topic .....

Research has shown in neuroscience that the human brain will try and perceive trends even where they might not exist.

After and event has occured 2-3 times in a row, regions of the human brain called the anterior cingulate and necleus accumbens will asssume this will happen again.
If the event does not happen again as anticapated, a natural chemical called dopamine is released flooding the brain with a soft euphoria.

Therefore stock goes up a few times in a row, your reflexively thinks it will go up and the brain chemistry changes as the stock raises giving u a natural high. U are addicted to your own predications.

But when the stocks drops it cause the amygdala to fire up in the brain which generates the part of the brain to cause fear and anxeity.

..... Hope this helps,

 

[Wysiwyg]

At the risk of looking like a "plug", here is a chunk of my course:


INVESTOR PSYCHOLOGY


THE TRADERS MINDSET


So you want to become a share trader. You have probably talked to someone else who has done it, and told you it was easy, a part time job with high pay and low stress. Or perhaps you picked up one of those trading books where they promise you wealth, freedom and happiness if you just follow their methods. “You can trade anywhere in the world, work two hours a day and live carefree”. Right, so then, why aren’t you trading from a tropical island instead of writing books for a living? I have read a lot of trading books, and the majority only tell you what you want to hear, because if they told the truth and said “trading is hard work, stressful, and 95% of traders go broke” nobody would buy their book would they? People aren’t interested in the truth if the truth is painful.

Ah yes,the painful truth.Excellent general coverage (the rest by crashy is elsewhere on this thread) of share market experiences.

One thing rarely mentioned is the "other people" influences on our success.The "gatekeepers" or "market makers" , the groups who decide yay or nay on individual stock movement.I refuse to believe "bad trades" are the result of poor homework , research or analysis.

Are these groups subject to scrutiny and accordingly lightened of their finances?As they take from others!Are these groups subject to ethical stance?The answer is no and the reason is ..... they make the rules.
So I don`t believe it is the individual traders buy and sell decisions that are flawed , but the other traders and "gatekeepers" influence on the outcome.

This next thought may appeal to some .... Day traders get targeted!!!!Reason....their money flow is easier to `regulate`.Soon as they buy in ...BANG... shut the door,pull all bids and start a sell-off.The ones that get away come back to the same bait and get caught later.Reason...taking is reciprocal.

 

[Wysiwyg]

Right from the start I have wondered why sellers congregate at a certain resistance point.If profit is made generally via stock price rises what is the reasoning behind blocking share price appreciation?

Is it because everyone else is,or the larger holders are,at a resistance point?Is it because the stock is `considered` full value?I don`t think this way and would love a regular resistance participant to give some understanding.

Thanks