Hidden Pulse

Market Psychology: How the crowd always loses in the stock market?

market psychology and mass mindset

Stock Market Psychology for Dummies: If you have common sense then Mass Psychology is easy to grasp

If you understand how the mass mindset operates it provides you with an edge when it comes to investing in the stock market. The odds are stacked against the individual investor so that any trading advantage one can obtain, should be embraced.  The idea behind the psychology for dummies article was to create a visual representation of the mass mindset in investing known as  market psychology, and the chart below captures the thoughts that go through the mind of the average Joe.  The herd mentality or Pack mentality should never be embraced; one you are part of the pack you virtually guaranteed to lose.

 

The masses never seem to learn from history, and sadly are doomed to relive these events again and again.  It is reminiscent of the movie “Ground hog’s day”, where the main character is condemned to relive in each day again and again for eternity. However, fortunately, he manages to find the cure to his problem.  Sadly this option is not available to the masses as they do not even recognise the problem. Over 80% of the solution to any problem is identifying the problem.

 

Market Psychology for Dummies; Graphic representation of the Mass Mindset in Action 

  1. The stock is going nowhere; its pure junk, let me look at something else.
  2.  Lucky break, it’s going to crash definitely.
  3. What, it’s still going up! Earnings are not so good, people are getting carried away, it’s going to pull back and crash.
  4. Ahh, see I knew it was going to crash, thank God I did not buy. (Mistake the mass mindset misses the main point here. Yes, it pulled back but look where the pull back ended–miles away from its first breakout. A losers mind can only see the picture for what it is not, by replacing it with a picture from his or her imagination. Since they live in a losing sphere, they focus on the negative aspects but not on the positive aspects.
  5. What happened here; this stock was supposed to crash, how the hell did it get here? Perhaps I should have bought; I could have made a lot of money; this looks like a sure thing. (So only halfway through stage 5 will the mass mindset decide it’s safe to venture out. 
  6. Now, this person finally musters the courage to buy.) Wow, it went up, great, I’m making money.
  7.  This stock is going to go to the moon; let me tell all my friends about it; it looks like a sure thing.
  8.  What happened? It pulled back. Ahh, I am not going to fall for this like I fell for it last time (look at number 4). Time to buy more, buy on the dip, that’s it.
  9. I knew it, it’s going up, and I made more money, wish I had bought more. Next time I will invest more on the pull back. (Notice the loser’s mindset does not bother to take the time to see that the stock did not put in a new high. All that matters is that it went up.)
  10. It’s going down again, time to load up; I don’t want to lose this opportunity. Earnings are great, so it must be a good time to buy some more.
  11.  The first dose of bad news and the stock takes a big hit; okay, this is just temporary; it’s going to go back up. (Blind faith huge mistake, one of the main ingredients of a losing mindset). Let me buy more and average down.
  12. Maybe I should sell now as the outlook does not look that great, but maybe things will improve.  Let me just hold for a bit longer.  Yeah, things have to change. Look how fast this stock went up; additionally,  it has pulled back so much. The worst is over; it has to go up.
  13.  This stock is dead; I have to get out.  Secondly, it looks like it’s not going anywhere (this is when the stocks start to bottom. The secret programmed desire to lose syndrome has completed its mission. Trader is in a state of extreme distress and shell-shocked). I am never going to look at this or any stock like this again. Moreover, comparatively speaking  I knew it was garbage.  Why did I ever buy it in the first place?  The stock starts to put in slow base formations and the possible start of a new uptrend. Moreover,  the worst part is that this trader is no longer in the market.  Lastly, he let panic get the better of him and bailed out just when he should have been buying.

Stock Market Psychology for Dummies final thoughts

Take a close look at the above picture, for it clearly illustrates the mass mindset in action. The masses never learn, they will always be used as cannon fodder as that is the role they secretly wish for. Remember the saying “misery loves company, but stupidity simply adores it”  The masses always dump when they should be buying and buy when they should be selling.

Nothing in this world comes easy for if it did, it was not worth it in the first place. A little work and patience are all that are needed to overcome the fear necessary to break away from the masses.  In this world, it’s not what you know that can hurt you, it’s what you think you know but don’t that hurts you the most. We hope you find this psychology for dummies article useful.

Published courtesy of the Tactical Investor

 

The Art of Cutting Your Losses

One of the most enduring sayings on Wall Street is “Cut your losses short and let your winners run.” Sage advice, but many investors still appear to do the opposite, selling stocks after a small gain only to watch them head higher, or holding a stock with a small loss, only to see it lose even more.

No one will deliberately buy a stock that they believe will go down in price and be worth less than what they paid for it. However, buying stocks that drop in value is inherent to investing. The objective, therefore, is not to avoid losses but to minimize losses. Realizing a capital loss before it gets out of hand separates successful investors from the rest. In this article, we’ll help you stand out from the crowd and show you how to identify when you should make your move.
Holding Stocks With Large Losses
In spite of the logic for cutting losses short, many small investors are still left holding the proverbial bag. They inevitably end up with a number of stock positions with large unrealized capital losses. At best, it’s “dead” money; at worst, it drops further in value and never recovers. Typically, investors believe the reason they have so many large, unrealized losses is that they bought the stock at the wrong time. They may also believe that it was a matter of bad luck, but seldom do they believe it is because of their own behavioral biases. Read more

 

Why People Lose Money in the Market?

Many new investors have found that, soon after buying their first stock, its value dropped by half. It makes for a disappointing introduction to the world of investing, but it can also prove to be a valuable wake-up call, inspiring you to learn everything you can about investing in the markets. While investing in financial markets over the long-term is an excellent path to wealth, it’s not unusual to experience occasional losses as investment values go up and down

Here’s what you need to know about why people lose money in the market—and how you can bounce back from a loss in your portfolio

Not Understanding Market Cycles
People often lose money in the markets because they don’t understand economic and investment market cycles. Business and economic cycles expand and decline. The boom cycles are fostered by a growing economy, expanding employment, and various other economic factors. As inflation creeps up, prices rise, and GDP growth slows, so too does the stock market decline in value.

Investment markets also rise and fall due to global events. After 9/11 the stock market fell 7.1 percent, the biggest one-day loss in the exchange. By Friday, September 15, 2001, the New York Stock Exchange had dropped 14 percent while the Dow Jones and the S&P 500 fell 11.6 percent. Read more

Table press table 2

AAPL

TablePRess 2 with YahooF script
date#NAME?        AAPL
IBM230120C00170000
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Google Sheet Embeded

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Table press table

Market Update Stocks (Current price updated every 15 minutes)
SymbolEntry DateEntry PriceCurent PricePositionComments
HTLDJun 201917.11#N/AOpen1/3rd of a position 17.401/3rd at 18.90 and 1/3rd at 15.05
HAMar 202120.05#N/AOpen1/3rd of a position 24.90 and 1/3rd at 15.20.
CRSMar 202138.17#N/AOpen1/3rd at 38.34 and 1/3rd at 38.00.
FISVMay 2021106.73#N/AOpen1/3Rd of a position at 114.20 and 1/3rd at 99.27
BWXTMay 202158.49#N/AOpen1/3rd of a position 64.20, 1/3rd at 58.45 & 1/6th 47.10
AYXJul 202168.42#N/AOpen1/3rd 83.87, 1/3rd at 68.60 and 1/3rd at 52.80
LDOSAug 202190.33109.49Open1/3rd of a position at 96, and 1/3rd at 84.65. Sold half in may at 110.75 for a gain of 22%. Place a stop at 90.00
COUPAug 2021167.13#N/AOpen1/3rd at 249 and 1/3rd at 219.45, 1/3rd at 110.00 and 1/3rd at 90.10
TFSLOct 202116.84#N/AOpen1/3rd at 19.74, 1/3rd at 16.79 and 1/3rd 14.01
MGNIOct 202121.03#N/AOpen1/3rd of a position 26.04 1/3rd at 20.70 and 1/3rd at 16.35
KMBDec 2021131.2#N/AOpen1/3rd of a position
RGLDJan 202298.55#N/AOpen¼ of a position. Sold half at 144.30 in Mar for a gain of 46%.
KJan 202262#N/AOpen¼ at 63.10 and ¼ at 60.90. Place a stop at 60.00. Sold half at 73.50 in May for a gain of 18.5%
AMDFeb 2022107.66#N/AOpen¼ at 114, ¼ at 108 and ¼ at 101.
CPBFeb 202243#N/AOpen¼ of a position.
MSFTFeb 2022272.91#N/AOpen¼ at 300.60, ¼ at 281.05, ¼ at 257 and ¼ at 253
ASANFeb 202245#N/AOpen¼ at 57.00, ¼ at 43.20 & ¼ at 34.80
FIVNFeb 202289.1#N/AOpen¼ at 96 and ¼ at 82.20
VALEApr 202214.37#N/AOpen¼ of a position at 15.84 and ¼ at 12.90
WMTMay 2022128.75#N/AOpen¼ at 133 & ¼ at 124.50
HALOJul 202244.04#N/AOpen¼ of a position
APDJul 2022237#N/AOpen¼ of a position
CFFNFeb 202111.6#N/AOpen1/3rd at 12.40, 1/3rd at 11.22& 1/3rd at 11.19
BHEMar 202127.02#N/AOpen1/3rd at 28.98 and 1/3rd at 25.05.
TRIPMay 202136.97#N/AOpen1/3rd of a position 43.80, 1/3rd at 39.06 and 1/3rd at 28.05
MOMOAug 20217.9#N/AOpen1/3rd of a position 12.80, 1/3rd, 9.60,1/3rd at 4.90 and 1/3rd at 4.40
CHPTDec 202116.36#N/AOpen1/3rd at 20.40, 1/3rd at 16.80, and 1/3rd at 11.90
GPNFeb 2022127#N/AOpen¼ 136.90, ¼ at 126.00 & ¼ at119
HIMXFeb 202210.11#N/AOpen¼ 10.27 and ¼ 9.96
GBTCMar 202223.1#N/AOpen¼ 25.80 and ¼ 20.40
ETHEMar 202214.2#N/AOpen¼ at 19.10 and ¼ 9.30
MJMar 202118.95#N/AOpen1/3rd 20.55 and 1/3rd at 17.35.
TLTAug 2021130.85#N/AOpen1/3rd 145.80, 1/3rd at 131.20, 1/6th at 115 and 1/6th at 116.10
SAAAug 202126.55#N/AOpen1/3rd at 27.60 and 1/3rd at 25.50
TMFSep 202121.7#N/AOpen1/3rd at 27.06, 1/6th at 17.10 and 1/6th at 15.60
ULOct 202153.1#N/AOpen1/3rd of a position.
AFRMNov 202190.6#N/AOpen1/3rd at 122.40, 1/3rd at 98.40 and 1/3rd at 51.00
WTWNov 2021224.16#N/AOpen1/3rd at 232.50, 1/3rd at 224 and 1/3rd at 216.00
XRTDec 202178.32#N/AOpen1/3rd at 91.50, 1/3rd at 83.25 and 1/3rd at 61.50
FINXJan 202226.8#N/AOpen1/4th at 31.50, ¼ at 28.50 and ¼ at 20.40.
SGOLJan 202217.11#N/AOpen¼ of a position
TQQQFeb 202242.15#N/AOpen¼ at 56.10, ¼ at 45.00, ¼ at 41.50 and ¼ at 26.00
DEAFeb 202219.25#N/AOpen¼ at 20.20 and ¼ at 18
VZMar 202248.57#N/AOpen¼ at 51.55 and ¼ at 45.60
URAMar 202221.37#N/AOpen¼ position 23.30 and ¼ at 19.45
XBIJul 202273.5#N/AOpen¼ position
BIBJul 202248#N/AOpen1/5th of a position
  Market Update Options (Current price updated on Mondays and Fridays)
SymbolEntry DateEntry PriceCurent PricePositionComments
IBM230120C00170000Mar 20212.80.19Open1/3rd of a position 4.50 and 1/3rd at 1.11. Sold half at 2.10 for a loss of 25%
KMB240119C00120000Jun 202217.721.63Open¼ of a position
VALE240119C00013000Jul 20222.93.45Open¼ of a position at 15.84 and ¼ at 12.90
QCOM240119C00125000Jul 202225.422.27Open¼ of a position
AAL230120P00010000Apr 20215.10.12Open1/3rd of a position
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How to invest in stocks?

How to invest in stocks: The playing field is not level We covered this topic several years ago, but we used a chart of the now defunct company, CMGI.   Hence, decided to…
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