Its really tough to write about psycology and behaviour but any saving and investment related blog is incomplete without post of behaviour of traders and investors.
There is one ancient tale.God decide to test psycology of human being [I think he may want to test that whether source code installed within human being is properly working or not!!] and gifted one couple with a hen that lay a golden egg every day in the morning.Couple used to sell the golden egg everyday and started getting handsome money..Slowly they started become rich..But,there was a reaction as well.. Within few days they become impatient and started spending sleepless nights,,waiting the golden egg.One day they become such impatient that they decided to cut the hen and to take all the golden eggs at once.Having done so,they found that this hen was not different from other hens and they loose their asset as well future gains they were assured day by day.
This story of ‘The Goose That Laid Golden Egg’ is true representation of what traders do in F&O or Commodity market.Rather opportunistic trading, we want gains for each and every movement.Number of traders loose the capital and as well possible future gains also.
Whenever I judge my own trading behavior,I found that after successive winning trades, I show overconfident,careless and irresponsible behavior and vice versa over-concious and very careful after loosing some money,,which ruins genuine market opportunities.
A number of papers have presented about this issue.Most of them argue that investors are generally irrational and source of this irrationalities is Greed,fear and other emotional attributes.Most of them conclude that there is a link between decision making and other parameters like breathing rate,heart rate,skin conductance and body temperature.Different emotional or moody conditions like happy,relaxed,angry,stressed,upset,guilty,enthuastic,nervous,gittery,afraid,
tired,sluggish,sleepy,anxitic and any other conditions affect trading decisions.
There are number of coaching classes teaches technical or fundamental analysis but I think that rather than technical analyst,, personality with patience and inner calm can become more successful trader and investor.
As well,Financial planning is important to achieve the financial goals in any one’s life, but mere financial plan may not be sufficient,one need to adopt the required investing psychology to implement it,otherwise it will be just like a new year resolution ,isn’t it?
Rightly said. Financial planning is important to achieve the financial goals in any one’s life, but mere financial plan may not be sufficient,one need to adopt the required investing psychology to implement it.
Otherwise why would people stop SIP when market is crashing?
Behavioral finance deals with emotions in investing. Parag Parikh has written two great books on it.
Hi,
Thanks for the comment.You have rightly pointed out the mistake done by number of investors in 2008..
Investing phycology is the most important but ignored aspect.
Being an active trader / investor sometimes I cut the losses at wrong times even though I can understand that things are going to run smoothly again ..its psychology finally.