Current news and human emotions can strongly impact market performance in the short term. The press can push short-term speculators to buy or sell impulsively and push long-term investors over the edge. Understanding market psychology can lead all market participants to make better-informed trading decisions and potentially maximize returns.
Emotions in the Market
The two primary emotions in the stock market are fear and greed. These two lead to feelings of hope for a profit after a loss, despair after a seemingly unrecoverable downturn, or panic amid a sharp change from shocking news.
Many inexperienced investors who choose to invest without seeking the guidance of a professional financial advisor may develop overconfidence in their abilities or mistakenly attribute short-term gains to their skills.
Investing Rationally in an Irrational Market
The sum of all influencing emotions and irrational trades can lead stock prices to move in unexpected directions. However, investors who adopt a contrarian investment style buy and sell opposite of the masses, buying stocks during a sudden sell-off to profit after a rebound.
Also, investors can prevent emotional biases from negatively impacting their trade decisions with dollar-cost averaging. Dollar-cost averaging involves investing a fixed dollar amount at regular intervals, regardless of fluctuations in the share price. This strategy can help investors avoid emotional trading from short-term fluctuations and current events. Over time in a volatile market, dollar-cost averaging can help investors accumulate more shares compared to making a lump-sum initial investment.
Getting Started
For investors looking to manage their risks in a market of emotional biases with a financial advisor, First State has over 50 years of experience building customized investment portfolios. To get started with Gold Chip stocks proven to meet client objectives over the long term, contact us at (918) 492-1361.
This overview is for informational purposes only and is not a recommendation. It should not be the sole deciding factor in making an investment. Investing is a risk and, as with all risks, a positive return is not guaranteed. Past performance does not indicate future results.