Trading Psychology In 60 Seconds
Studies have found that when investors and traders avoid selling losers to avoid feelings of regret and when they do this, they often end up causing themselves greater financial harm and psychological distress.
A lot of trading psychology has been learnt through meticulous research and study, by people such as Amos Tversky and Daniel Kahneman and more recently, by Brad O’Dean. If we skim the cream off the top of their studies we find that investors and traders routinely avoid selling losers to avoid feelings of regret and WHEN they do this so that they often end up causing themselves greater financial harm and psychological distress.
Ergo, here we are looking at the CTD chart in July 2020 (CTD is listed on the ASX). It’s been on a downtrend for two years falling from $33 to $12 today. All the research tells us that if we were a buyer at $30 and are still holder today, we are doing so for several reasons. Either we are being duped into holding on by someone else, such as a financial advisor or, more likely by our internal psychology.
We avoid selling now because:
We cannot face taking the financial hit to our account.
Because we cannot face up to the fact that we are wrong. We bought at the top and now have to sell at what looks like the bottom.
We avoid selling because we hold out hope that the stock will once again trade back at $30