“Price of flooding” in trading

You invest 25% of its share capital to which your analysis of predicted growth. Your expectations, however, were not justified. Price confidence falls. You think: “I did such a thorough and detailed analysis. I spent a lot of time to study the fundamental factors of this company.

I can not believe that it is falling. “At this point, you hope that the position will develop, and refuse to close it down. Easiest to keep an open mind, than to admit a wrong decision and take the loss. This is called the cost of flooding: a man increases the debt to a losing position only because it has spent much time, effort and / or money.

The most obvious and clear example of the effect of flooding the price – when we have invested a large percentage of their capital in a losing position and do not want to admit that they lost something of that invested. However, there are other, more subtle ways to effect the price of flooding. Most people do not see them, but they may affect investment decisions.

The old adage “Time is money – illustrates that there are other ways that you can” lose money, only spending time and energy investment. For example, you learn tschvtelno researching a particular company. You are viewing the message on its fundamentals, and a daily watch for the price of the shares, noting the price changes that match the company’s announcement and significant developments in the industry. The more effort you expend on the preparation and analysis, the more the price will be flooded. There is a strong desire to justify the time and effort you’ve spent. Otherwise, why so much time and energy to spend on this company, if you do not invest in its capital? This desire to want to justify their behavior would be to bite you, but if you do not know this, and do not try to control it, you’ll want to seek to invest (long or short) in stocks, even when you know that we should stand aside and wait for another opportunity. Good to know about this subtle effect. Ask yourself – “I want to invest, because I see a real opportunity, or I’m just trying to justify the effort?” It is important to know how it’s subconscious, but a powerful influence can lead you to a decision about which later come to regret.

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To overcome this effect is difficult. It is well to scrutinize the company and profit from emerging opportunities, but do not overdo it. Remember, spending more effort is a subconscious effect. Try to overcome it. Remind yourself that you are not obliged to invest. Your analysis and training ever to come back a hundredfold, and learn to wait until the correct option.

Be aware of the subconscious and overt ways in which the price effect of flooding can affect your behavior. Try to see whether the price of flooding affects your decisions. Try to rationally oppose it.

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