INVESTMENT PSYCHOLOGY

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Imagine the stock market as a big battle arena where:

  • Bulls (buyers / demand / optimism) push / gore the price up.
  • Bears (sellers / supply / fear) slap the price down.

INVESTMENT PERSONALITIES

BEAR

Pessimistic investors who believes the market will enter a downtrend (taking a dip).

BULL

Optimistic investors who believes the market will enter an uptrend, and the buy demand pushes prices higher.

CHICKEN

Fearful investors who take lowest risks.

OSTRICH

Bury their head in the sand, during bad markets, hoping their portfolio won't suffer sever damages.

PIG

Impatient, greedy, emotional and the biggest losers in market.

RABBIT

Take positions for a very short period of time.

SHEEP

Follow the heard and aren't interested in developing their investment strategy.

STAG

Explore opportunities, but are neither bullish or bearish.

TURTLE

Slow to buy and slow to sell, because of long term time frame.

WHALE

Extremely big investors who can move the market.

ROBOT

Invests based on technical analysis, ignoring macro-economics.

The emotional roller coster

Most new investors struggle to control their emotions during trading and often end up losing money.

Emotions are unhealthy and dangerous for investors when they

  • Lead to irrational decisions based on short-term pain.
  • Cause you to lose sight of your strategic objectives and financial goals, whether it’s fear, anxiety or euphoria.

Most common emotional reactions are

  • Stress and panic.
  • Regret or overreact during times of stress, euphoria or panic.

A successful investor

  • Is rational in stressful times and sticks with an investment strategy.
  • Avoids getting fixated on irrelevant data (ex. stock price focus).
  • Focus on relevant financial facts, market trends, technical patterns and strategies.

THE FEAR & GREED CYCLE

Fear is when you are scared and afraid of the stock price to fall and you sell in panic.

Greed is when you're happy and excited about a stock rise and you buy more of those stocks.

"Be fearful when people are greedy and greedy when people are fearful".

- Warren Buffett.

THE FEAR & GREED INDEX

To get a feeling of the markets current fear vs. greed level, use the indicies below.

8 Psychological Traps Investors Should Avoid

1. Anchoring Trap

Over-reliance on what one originally thinks.

2. Sunk Cost Trap

Protecting previous choices or decisions.

3. Confirmation Trap

Seeking self-delusional confirmation from others who have made and are still making, the same mistake.

4. Blindness Trap

Doing nothing and postpone the evil day when the losses have to be confronted.

5. Relativity Trap

Doing what others are doing and saying, even though their situation, views and context is different.

6. Irrational Exuberance Trap

Believing that the past equals the future, acting as if there is no uncertainty in the market.

7. Pseudo-Certainty Trap

Seeking more and more risk if it looks like they are heading for a loss.

8. Superiority Trap

Overconfident and think they know better than the experts or even the market.

“Doing well with money has a little to do with how smart you are
and a lot to do with how you behave.”

– Morgan Housel, The Psychology of Money.

“Becoming financially independent is the greatest path of personal growth, because there’s so much you’re going to have to go through, and so many things about yourself you have to overcome to BREAKTHROUGH those barriers, and achieve that success. It’s a personal path of financial success and a path of personal growth, both of which are very rewarding”

– Todd Tresidder

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