Since last month, Jason holds a position on DELL. He was in profit, and profit forecasts irningov promise, in particular, because of entering new markets. On the other hand, the economic indicators look bleak. Business news full of stories about cuts in companies that can easily put up for sale new computers at low prices.
Jason was in a quandary. He is proud of its decision to buy a DELL, and hopes to make a bargain, but the questions “I trade on the news?” I listen to the media and ignore other more important economic indicators? I should immediately sell or even hold a long position? ” disquieted. He wants to make a profit, but on the other hand, he did not want to be winning the game had become unprofitable. It is one thing – an incorrect assumption about the opening position, and quite another – to allow profitnoy deal to become a loss. Inaction – is the main reason for regret. What to look for possible causes for regret, why not sell right away, do not it better to lock in profits and to experience pride
The interaction between regret and pride affect many investment decisions. On the one hand, people prefer to feel pride, basking in the rays of winning trades, but on the other hand, “let him come profits.” It is difficult to afford to develop a winning deal. Suddenly it will unfold, and omissions may subsequently result in regret.
According to behavioral economists, regret and pride – the two most common and strong emotions related to investment decisions. Traders and investors are looking for an occasion for pride and avoid regret. Pride comes when we have reached an important goal. She brings a sense an emergency meeting. Regret is when we made a bad decision. According to behavioral economists, the need for pride and fear of regret forcing traders and investors prematurely close winning positions and overly perederzhivat unprofitable. Here’s how it happens. Closing the deal unprofitable forcing the investor to recognize that his plan to trade was wrong. Instead of feeling pride he feels guilty, that is unpleasant emotions. Hard to deal with regret from a bad decision, so this decision is postponed. On the other hand, closing a winning position gives the right to boast. Man will be proud of a great victory and bask in the glory of a good bargain. What’s wrong with this strategy?
Research Dr. Terrance Odean found that a winning position, in all probability, will remain a winner. If the trader would hold it, it would bring more revenue. Rushing to the closure of its sense of pride for the sake of vanity means meeting the expense of higher returns. However, the early closure of a losing position would be far more wise move. Losing position tend to deteriorate in the future. Do not let regret and pride to govern themselves. Cover your losses and keep the profit.
