In the field of behavioral Finance is very popular belief that investors most of the "arrogant". They are dangerous transactions that do not generate a profit and, eventually, end up with a lower score than those who fewer deals.
the Evidence in favor of this hypothesis is obtained when the original research professors of Finance Brad Barber and Terrance Odean. They analyzed the situation of the accounts of a large number of online traders. Subgroup identified as "confident", showed significant achievements at the beginning of the observation period, but ended with more disastrous balance at the end, compared with less confident investors. Presuming investors make a lot more deals than others, achieving much greater profitability. Making considerably more transactions, they pay more fees, which, in turn, has led to the deterioration of the account.
Overconfident investors were mainly young people aged about thirty years and, thus, it seems as though this age is inherent arrogance and a tendency to over-trade. Although the serious study assumed that some investors are more "presumptuous" than others, it is not used no psychological measure of arrogance, or optimism, in order to appreciate this feature. Used a kind of assumption that identify the arrogance of possibly greater number of transactions. But presumption is a trait of personality. To show the effect of optimism and self-confidence in trading, that line is to be measured. Science is moving forward and sets limits on the overall conclusions. More research is needed to examine this problem.
the Study, Dr James Felton and his colleagues, published in the current issue of the Journal of Behavioral Finance, " sheds light on the connection between the results of trade and presumption. University students of the financial course participated in a 13-week modeling. Each participant gave a virtual us $ 500,000 for investment. There were, however, some real incentives for success in the modeling. Students could win 500 $ if it appears in the top quarter according to the results of the test. Optimism was measured by means of a reliable and valid psychological scales. "Dangerous" investments were defined as investment in futures and options and as the number of transactions made during these 13 weeks. Men and women did not differ according to the levels of optimism, but optimistic men make more dangerous transactions (futures, options, number of deals) pessimistic than men, pessimistic women, or optimistic woman. In contrast to the study of the Barber and Odean, optimists have doing more dangerous of the transaction do not seem to have any negative consequences. The final value of the accounts did not differ between men and women, or between optimists and pessimists.
now, be optimistic trader poorly? The verdict is still missing. More research is needed. Still, most likely, not the best idea to be optimistic and to make transactions without carefully studying of the risk limit the size of the position, or use protective stops. But it is possible that moderate optimism and confidence useful. Dr. Felton indicates that the pessimists often panic, frightened and discouraged when the fall in losing deal. A moderate amount of optimism, on the contrary, ensures that even in a losing position, optimist rather find information and will take an informed decision. Ultimately this is somewhat like walking a tightrope between emergency unrealistic optimism and emergency exhausting pessimism. Finding strong balance is the key to consistently profitable trade
the Arrogance of one of the most common psychological problems of traders. To complacency tend to all people, but some of it may reflect deep psychological conflicts. Sometimes, however, the arrogance is simply a question of the difficulty of breaking old habits. Sometimes, trading strategies are executed us "too automatically, even if the rules are not quite correct. Sometimes it is necessary to learn to another behavior or "re-learning" trading.
it is Vitally important so hone your trading skills so You can make transactions freely and intuitively. Thinking limited, but with practice you can simultaneously perform a variety of tasks and expand the scope of thinking. The best example of the automatic execution of tasks - driving. When You first learned to driving, it was very slow: You intently pressed the brake when the expected potential danger and concentrated attention on the gas pedal, if all went well. As experience is gained, however, much of your driving has become the "automatic" and You no longer needed to pay attention to the routine. Now, as an experienced driver, You can easily cope with a variety of tasks on the go: configuring the radio glance in the mirror, tracking speed.
a Similar psychological process happens and the accumulation of experience in trading: You no longer need to carefully evaluate opportunities. You can now act of "intuitive" and be right most of the time. This form of automatic operation allows You to trade effectively. You can do more with less psychological energy.
But what happens when trading on "autopilot" no longer works? State of the market is continuously changing and the strategy that worked last week, may not work today. When this happens, You must learn to use a new strategy. However, this may be harder than it seems.
have You ever tried to change the approach once developed the skill? Have you tried to improve the scope of Golf clubs or apply a new way to use the thing after many years of practice? Sometimes it is more difficult than to start over. You must learn to competing method and try and stop using the old one. For example, see a man who learns to drive a car with a manual transmission after several years of driving with automatic. Much like the re-driving training. Press the clutch pedal, not taking his foot off the brake pedal, turn on the first transfer and gently squeeze out the clutch. But there is a big difference is, when You have learnt to drive in the beginning: the years Passed, and there is a strong desire to forget about the concentration on the new skill and doing it the old way. That is, You may forget to squeeze grip when the brakes, or you're going to switch gears without clutch. It is a form of "arrogance". All forget that they do not know how to drive a manual transmission and return to the "old" automatic method. The same thing can happen when You try to learn a new approach to trading; You can trade "automatically"if you forget about caution. When learning a new skill you need to be focused and relaxed. Pay attention and focus on every action, while not replace the old method to the new. Remember, old habits are hard to break, but if the focus and practice, You can replace the old new approach.
trading for money
Many people start trading career with hopes to become the next Warren Buffett and George Soros and buy million-dollar homes and fast cars. They vividly dream about how much money they would do if buy stocks, which grew by 12 dollars for a week. They ask ourselves: "If I do 50,000, I'll be happy" or " If I make a million dollars, I'll go - I don't need".
Then they start trading... And lose. Types of thoughts and expectations that bring these types of traders on the market - a guarantee of infinite loss. This is because such thinking often indicates that a trader is trading for the sake of activity, and for the sake of money. Although almost all traders interested in profit, trade with the aim of wealth is uneven.
whether the trader loans to repay, or he wants out the fancy sports car, cerebral pressure inherent in such types of financial expectations, has a tendency to establish some sort of "standard" or quota in the mind of a trader. Of course, it then shifts the perspective of a trader and risk management parameters. Often this causes the trader to neglect the risk of forcing him to take profits without attention to proper relations profit risk and installation of points of stop losses.
Successful traders almost always traded for the sake of the process itself. You can often read about them, saying that they don't really care about losing money. This does not mean that they ignore losses, just potential financial loss is not the engine of their trading or investment decisions.
Traders coming in for profit, rather quickly learn that, the more they want money, the easier it is for them to lose. It is very important to find out what is your goal in trading. If you find that You are trading with any kind of financial pressure, You should think about why this pressure exists, and then work on its liquidation way You would like it to trade for the sake of the process of trade. Profit is not slow to follow.
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