Which ways are the blunders of our mind ...
The brain can play tricks on me, even when we apply it to finance. We would like rational, capable of information and maximize investments. The reality is quite different.
The effect that instinct can lead us to think about to enter or exit an operation is an ugly beast, can make us fall into temptation, into a thousand errors in our portfolio strategies.
There is evidence, for example, the tendency of traders to keep for too long the securities at a loss. Why? We are influenced by aversion to losses, not accept them. It is an attitude inherent in our being: we want to avert suffering and in the case of investment shares, the "pain" of the loss. Thus, excessive delays sale. Conversely, if the stock rises we are led to anticipate the pleasure of gain or cause us not to experience negativity, and often sell too soon. How to deal with it? Simple, preventing the trouble in advance and always setting levels of stop-loss and take-profit and only then we will have a "signal" default we will address on a less emotional way.
The small investor conform to what others are doing, following the trend and the crumbs are enough of sharks. The individual titles for retail, curiously, does not tend to follow the institutional, Why? We have an approach in terms of "static": the appearance of the transfer on the certificate, if it were a commercial product, without any assessment of the prospects. And again, the risk is loss!
addition, in an interesting study, were able to demonstrate the influence of the name of a company being placed on their performance. The tiker code (international codes that distinguish each title, similar to the example of for Unicredit UCG) are widely used by investors and more are easy to pronounce and more interested in purchasing. The result? There is "entrusted" to what seems most familiar and then the yield goes down.
Then there is the unhealthy habit of making predictions that a biased initial estimate, at a price considered by us the "right". Mental anchor to which we bind ourselves and stop us, to react quickly.
In short, there are many mistakes we make because we are not so rational as we think we are and there are many precautions to take in activities where it has been shown that the instinct has a strong emotional importance. This is yet another demonstration that in addition to learning a valuable trading system, by implication must also take account of the decision-making mechanisms, is of a more objective and subjective for which the behavioral sciences can, and should, make their contribution.
Summary:
-Eye instinct, we must be disciplined to keep it out of the trading system;
-We have an aversion to losses, let us not be influenced and placed an order and insert Stop Loss Take profit predefined
-We follow the herd or sharks, whatever you want, not creiamoci an ideal price for a given title;
-Out emotions from trading , do not be influenced by the name and reputation of that particular company;
-Be emotionally detached, read some text on the psychology of traders.
Happy Trading ...
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