Psychology of stocks
We picture the stock market with arrows and numbers which are technical in nature but there is something known as Behavioral Finance - Predicting setbacks and moving coins.
"Losses loom larger than gains"- which means investors react more to losses than gains.
The stock market drives investors crazy. It pins investors 24/7 in the dilemma, whether to hold a share or sell them. For instance, a share's price comes down from 350 to 300. Optimistic investors might wait for an upward trend but pessimists immediately liquidate their holdings.
Emotions and sentiments don't work but psychology does!
Insider
trading is common but some are legalized and some are not. Legalized where the employees of the company file proper SEC while trading. Illegal when the employee makes decisions based on confidential unreleased information.
The insiders manipulate - Pump & Dump
The companies pump up a stock price by running ads, marketing in the internet Chat room, and makes calls and SMS.
All these will tempt and convince people to state it as a golden opportunity to make good fortune.
Mass acts according to the Hype created, and insider's act in contrast. How? Why?
Using our herd behavior. As we all buy the share- the price goes up. So the insiders who bought the stock at a lower price will now sell. A
common understanding - when the price reaches its max. Herd behavior is sensed, everybody tends to sell and book profits due to which the demand for the stock falls and price drops.
This
doesn't mean one should not trust the market conditions but no assurance that if the market goes up and so does your stock.
Beware of the current economic conditions, demand, and supply and most importantly about the company's performance not only financially but in every aspect because people usually sell if the company is under any lawsuit. No matter how good a company is, if the economy is under crisis then the overall stock price is affected.
There are
so many examples known as bubbles. A Bubble means sudden inflation and an imminent drop in the value of commodities or companies which has no reputation or earnings.
Tulip Bulb Mania
In 1635 at Holland, Netherland suddenly the tulip bulbs became a
status of the rich. People bartered pigs, horses, cheese, beer, and even valuables like houses and paintings. As they were bid up to high valuations. People bought and sold immediately. The entire country was drowned in this mania. One day this bubble got popped. Little did the New investors did not know that they were too late and it wasn't a wise investment. People realized that the bulb was not that worth it that its price rose. Now they were unable to sell it and the Dutch economy collapsed.
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Short term investors follow the groups because all together everybody will make investment and the share price rises and as we sell
the price starts to retard.
No matter what, we humans always think, we could have sold it for a better price and that's why they hold a
bit long where sometimes it's a bane because of our greed as there might be quick drop and we won't be able to sell and thus earning some amount of profit is better than no profit. So it's you who has to decide. Admit your initial loss before it's too late and move to the next.
Psychology
of the market helps us make profitable investments. Beware of the economical & political conditions. Analyze well to form your own riddle on where to invest.
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