I am a fan of Master Hu Li Yang who has written many books on investment. This is one piece of article on investment psychology where amateur investors always made a mistake on and making huge losses on their investment journey, extract from his book title "Stock Invest A Hundred Strokes".
I feel that this piece of article is an invaluable lesson an investor need to learn from prior to their investment journey to profit from the financial markets.
Master Hu Li Yang always said during his seminar workshop that humans are an emotional animal and stock markets is a reflection of price investing rather value investing in a company, buy low sell high in price creates value and vice versa buy high sell low price is a liability. humans tend to make mistakes again and again even though how history depicts of one drawn from the painful lesson of the past financial crises stem from the unsustainable animal spirit of bull or bear, either greed or fear when it comes to investing result in a chart with parabolic price movement.
With the current bitcoin euphoria and reaching an all time high of 19.666 US dollar in December 2017 in a short time frame span of a year which can be applied.
Below article sums up the essence of 5 steps of investing psychology.
"Each phase of a stock, then will naturally inspect the stock price. The trouble is, if it falls, I must secretly glad did not buy. When it rose, but began to move, a few days later could not help chasing, always buy at the highest point. What exactly is the problem?
Five investment psychology
When investors consider buying a stock elephant, they will go through five different stages of the mentality. The so-called Five Elements of Investment Psychology are: sour, disappointed, angry, crazy and vice versa. If you can not buy in time before the second song, you must not be sad, forget it!
In many investment tragedies, "blindly forcing high prices" will always be the top culprit. Many investors are often blindly chased after knowing that they have lost their chances for entry because of a lack of commitment.
In the face of a rising stock, there are roughly five stages in the investor's mindset changes. I call them the investment psychology fifties:
The first song: Suppose investors have selected a stock, while the price is 20 yuan, but based on picking up cheap psychology, want to wait until it cheaper to buy. Unexpectedly, the stock does not fall, but rose from 20 yuan to 22 yuan, this time investors in the heart "sour" "it will certainly return to 20 yuan" feeling.
The second song: When the stock continues to rise from 20 yuan to 24 yuan, investors began to feel the psychological "disappointment" feeling appeared on their own did not buy 20 yuan when quite regrettable.
The third song: When the stock rose to 26 yuan, the investor's psychology began to "angry", resentment, he will continue to curse the performance of this stock is baffling.
Fourth song: When the stock rose to 28 yuan, the investor's emotions will be close to "crazy", he was uneasy and murmur, and even the newspaper live on a piece of the stock I did not dare to read the news
Investment fifth song: It is also the most decisive step is, once the share price soared to 30 yuan, then the emotions of investors will suddenly have a big change of 180 degrees. He is no longer angry, no longer regret plum, but will think that only a share of the capital value of this price, but also think there is the possibility of further increases, why not always with their old? So he changed his mind, at 30 yuan When the time comes. Quite often, he was finally stuck in the upscale!
The reason why 30 yuan involved, nothing more than two reasons: one is to tell myself, even grab a short-term, you can earn two or three dollars; the other reason is the price of rising dizzying , Illusion that the stock has the potential to rise to 40-50 yuan, now involved, presumably there is a large difference can be earned. Like this very sympathetic example, I am not uncommon.
In view of this, if there is a sour feeling on the rising stock first, and then it begins to disappoint, that is your last chance to buy the stock. Once you miss this stage, your heart is already getting angry, When crazy, most will make a "crazy" decision.
Therefore, advise everyone, why the world's stock is so "dead-hearted" staring at a stock you missed?"
Artcile is extracted from http://www.zcaijing.com/touziyibaizhao/12816.html
Disclaimer: All news, information and charts shared is purely by my research and personal views only. This is not a trading recommendation or advice but on the basis of sharing information and educating the investment community. Different traders and investors adopt different trading strategies and risk management approach hence if in doubt please approach or seek clarifications with your Financial Adviser, Broker and Banker.