If you invest in the stock market often you should be aware that the emotional management of your investments is much more difficult than it looks, whether you win or if you lose.
Inspired by some writings of Dr. Steenbarger I have collected 7 common psychological errors committed by many investors to invest their money in the stock market:
1- The paralysis of losses:
Many people repeat this mantra unjustified “bag in the long run always rises,” and with that idea solvents invest their savings in shares, which give dividends, for the long term, saving for retirement.
But we must be aware that with this technique we can lose your shirt.
Do you think about Apple, or Google, or Santander? Check out the quote that was the largest and most solvent bank in the world, Citibank
Do you do if your savings evaporate in a crisis?
Many people confess: nothing. It hurts so much to see losses, sometimes even we stop looking quotations.
But in exchange, doing nothing is not an option. Because in reality if we are doing something: to bear the losses, trusting that they recover.
And when the losses reach 50%, or more, we cannot sell because there is too much loss.
It is a mistake: you can sell sooner or later, but do not stop.
2- Depend on the frames
The frames are the way situations arise. The way we interpret what happens with our investments.
And the human being is very dependent on them, both when investing as in many other aspects of life.
An example is the recent success: when we have several successful operations in bag and accumulate a good profit, we tend to take more risks.
Somehow, we re-elaborate the concept of risk, based on a history of benefits that may not be long enough to draw conclusions.
And so, we think two things:
1- ” It’s easy to win in the stock market following my rules , I see that work always”
2- “Actually I do not lose, I’m playing with benefits”
And we lose the notion of reality, distorted by our framing. And worse, we lose the money.
3- Having negative emotions
Again the management of losses, so difficult: we suffer for them, we raise questions: “why not sold before, why I not put the stop loss that useless!”
This negative emotional management is very costly for the mind, does not bring solutions, and only waste time.
The investor, who focuses on their problems and their way of doing things, is de-centered markets.
They distort their view of the market because it is focused on him, identifying him with their problems: it becomes the problem.
It’s a mistake.
What a frequent investor should do it is focus on your buying and selling patterns . And how the market is.
By focusing on their employers, not only suffers negative emotions, and not identified with their mistakes.
It does not fail: it has unexpected results. So he corrects his methods.
It’s boring, not as emotive as success and failure, but it helps you win on the stock market.
4- Do not “emotionally diversify”
This “emotional diversification” works similar to money.
One who focuses his enthusiasm, effort and best capabilities in the bag, is running a high risk.. If the results are bad, you are unprepared to withstand the blow.
Therefore, as in the bag, we keep our hopes and emotions diversified the family, friends, and other illusions, to help us keep the balance when things are bad given in bag.
5- Having a purpose sinful: feel good
Sometimes we want to invest in the stock with the human purpose of feeling good.
We study hard investment methods or technical analysis, and apply our knowledge. Bingo! We won!
And our self – esteem goes up with our own results.
If after a good run of success you go around bragging, advising others how to invest, and maybe even increase your frequency of trading or the size of your positions. danger!
Your reptilian mind is taking control, and you risk losing the focus, which must be on the markets, on investing methods, and not on having fun.
Of course it is not forbidden to have fun, enjoy stock market game but should be secondary, as a pleasant side effect.
Speaking of the following error I will be more aggressive, and I’m going to challenge someone very precious: To you, dear reader:
Unclesam-pointing6- Why are you reading this?
You’ve gotten into slowinver.com a brokerage and investment blog and read this article because.Why?
If you are a person who asks others where to invest, how to manage your money or if you often read blogs or books bag with investment advice, you should ask yourself:
Are looking for security guru, expert to avoid responsibility for your investments? Do you illusions easily with little tricks and tips guaranteed, because you need the illusion of easy success and hard work eludes carefully analyze?
If so, it is a mistake.
You must answer honestly: active you’re Inner Observer, the rational mind and detached from your emotions that we all have when we are calm.
But I do not want to be as edge: in fact, read books brokerage, consulting blogs with tricks and systems, or seek advice from experts can be just that: to learn.
It is always good to acquire knowledge that you then develop and adapt to your own way of investing. But you have to be aware.
And now that I’ve gotten into you, I’m going to challenge another even more precious person: myself
Why am I writing this?
It is obvious that when one or more followers seek advice from an alleged guru, dependence on the relationship affects both sides: the following, but also that advised.
So I also activated my Internal Observer and I asked myself:
What do I do by writing this blog?
I’m devoting a lot of hours to writing articles, when in reality I should be analyzing the markets, improving my systems .why?
Do I need to demonstrate my knowledge in a public environment such as the Internet?
Or do I need to get praise from people who tell me I’m great?
I’ve watched, and I think it’s not for that.