When trading in the markets, losses are commonplace.. They hurt us., but, for some traders, the bitterness of a wrong decision is the worst feeling of all. They blame themselves for, what did what – that's not the case. They drive themselves so, that they are trying to refuse to make deals, so as not to feel regret later. In the book Beyond the Threshold of Greed and Fear, Dr. Hersh Shefrin states, that regret and responsibility are closely related. The more responsibility we take for our actions, the stronger the sweat is the feeling of regret.
Dr. Shefrin analyzes in his book the state of three transactions, which traders George concluded, John and Paul. Each of these traders is characterized by their own level of acceptance of responsibility and, accordingly, we feel regret.. So, George, analyzing the market situation, decided to sell my stock portfolio and buy certificates of deposit. John, also sold shares and bought certificates of deposit, but based on the recommendation of your financial advisor. Paul has always invested in certificates of deposit and continues to do so. All three traders bought certificates for three different reasons: one of them, based on our own analysis, another on the advice of a consultant, the third, because this is his usual tactic. What each of them thinks about their investments? What, if the market situation is unfavorable, and that it would be better to invest in stocks. How do you think, who feels the worst? According to Shefrin, it depends, who feels most responsible for their actions. In this case, George is inclined to, to feel the greatest grief. John, probably, will be more angry with his consultant ant, what upset, and as for Paul, then he will be indifferent enough, since he doesn't invest in stocks.
Does regret affect trading decisions? Yes, some traders succumb to its influence. The best way to avoid this is to simply stop trading the market.. But there are also less radical ways to protect yourself from this feeling.. You can consult with others, and then secretly accuse them of, that they gave bad advice. You can stick to your usual trading style and try to avoid playing by chance.. You can impose limits on your trading style, that will relieve you of your regret. It is worth remembering the thread, what should not be allowed, so that regret influences your trading decisions. It is very important to know, what impact it can have on your trading.
Do all traders succumb to this influence?? While it is common for almost everyone to feel regret after a bad investment decision, which was solely your fault, studies show, that some people feel more regret, than most others. For example, research on pessimism and optimism proved, what people, who tend to be disappointed and pessimistic are more likely to think, that unpleasant events in their life are caused by their own mistakes and reflect the constant characteristics of their personality. They're mad at themselves. Subconsciously they think: “I have no talent for trading. I make bad decisions, I am incompetent ". This predisposition to, to blame yourself, creates the prerequisites for a tendency to upset. If you are human, who blames himself for failure, then you have a tendency to be upset, and it can have a negative impact on your trading opportunities. It is important to acknowledge, that such a problem exists and use some psychological strategies, to help you beat this trend. We will share some of them next week..