Investments And Psychological Traps

Investments And Psychological Traps

The stock market shows two different market traits, the bull, and the bear market, that are entirely based on the trader’s emotions. Fear and greed are often seen causing variations in the stock market. Experts say there are many psychological traps the traders can find themselves in, this article focus on naming a few of them.

1) Anchoring Trap: Many people tend to hold on to something that they believe will work out in their favor. Traders might see huge potential in a company and assume its stocks will do very well. But the company’s performance can be based on many factors in the market. It might work out well as per the trader’s expectations; on the other hand, it might fail to prove its competence. It will be unwise to continue with the company just because you believed initially that it will work out. This type of psychological behavior of holding on things is often known as Anchoring Trap. In order to avoid getting in such pitfalls, traders should remain flexible in their thinking and should be open to all the options and not to stick with only one.

2)  Confirmation Trap: Many traders tend to get help and pointers from other stock traders who have invested in similar assets. These stock traders may have their own thought process and reasons for investing in certain stocks and these reasons may be totally different than yours. So investing or continuing with assets just because some else is still holding onto it can be a risky deal. Instead of relying on the opinion of inexperienced fellow traders, you should put your trust in the market experts.

3) Blindness Trap: Sometimes traders can be ignorant about the market situation even after worrying news in the market. The stock companies may not turn out as expected, or there could be a scam or scandal going in the market and traders can be completely unaware of it or choose to blindside it. It is important to educate yourself with the scams and rumors going in the market. Traders can refer to various websites available in order to keep themselves updated.

4) Relativity Trap: Traders often tend to trade with the market emotions that is they sell the stocks if everyone is selling or buy because everyone is buying. Other traders can be making their decisions on various other factors that do not concern or apply you, like money obligations, family needs etc. Traders must invest thinking of their own choices and concerns and not be relating to other fellow traders.