To Succeed in Investing, Don't Become Fixated by Your Own Success
What follows is a true and factual story. A University in the US did an experiment to understand more about the psychology of success. This experiment has subsequently been repeated a number of times at different places and by different people.
The experiment is straight forward. It asked people to guess the outcome of tossing a coin. The outcomes are either heads or tails and you guess the outcome and then you are either right or wrong.
On probability, if the coin is tossed you have a 50% chance of guessing correctly which way it will end up. The experiment required 500 tosses of the coin and the outcome followed the laws of probability of around half of the tosses producing a correct guess. This probability outcome is fairly well understood by the experiment subjects, and people generally.
What you may not be aware of is that in the 500 tosses there is a fairly good chance that you will put together three or four runs of guessing five tosses in a row correctly. And here is where the psychology of success takes hold. What the university experiment did was asked the people guessing the outcome of the toss how they felt about their performance at various times.
What they found was that when people were having successful runs - four or five or six correct guesses in a row - that they believed that they themselves were responsible for this success. Reasons ranged from, I am getting better at this, to I am now concentrating harder and that is improving my performance.
Let's stop right here. People who know that the outcome of a guess is based on a strict 50% probabilistic outcome believe that when they have a few guesses correct in a row that it is because of their talent and ability. How scary is that.
Yet this happens with people investing in the stock market all the time - especially people new to investing and trading. After a winning trade or two or three, the investor or trader begins to believe that they have a special "talent" for stocks and shares. They begin to believe that they are naturally better than the average trader.
The outcome, before too long, is that the investor's belief in their own ability results in over confidence. This over confidence results in trading too many stocks or trading without managing the risk inherent in any trade. Unfortunately the stock market has a nasty habit of slapping down over confident traders with a big loss.
So remember, every trade you take has risk which you need to manage. If you manage your risks and enjoy the chance string of winning trades from time-to-time you will be successful and you will avoid the Market Slap! - 23210
The experiment is straight forward. It asked people to guess the outcome of tossing a coin. The outcomes are either heads or tails and you guess the outcome and then you are either right or wrong.
On probability, if the coin is tossed you have a 50% chance of guessing correctly which way it will end up. The experiment required 500 tosses of the coin and the outcome followed the laws of probability of around half of the tosses producing a correct guess. This probability outcome is fairly well understood by the experiment subjects, and people generally.
What you may not be aware of is that in the 500 tosses there is a fairly good chance that you will put together three or four runs of guessing five tosses in a row correctly. And here is where the psychology of success takes hold. What the university experiment did was asked the people guessing the outcome of the toss how they felt about their performance at various times.
What they found was that when people were having successful runs - four or five or six correct guesses in a row - that they believed that they themselves were responsible for this success. Reasons ranged from, I am getting better at this, to I am now concentrating harder and that is improving my performance.
Let's stop right here. People who know that the outcome of a guess is based on a strict 50% probabilistic outcome believe that when they have a few guesses correct in a row that it is because of their talent and ability. How scary is that.
Yet this happens with people investing in the stock market all the time - especially people new to investing and trading. After a winning trade or two or three, the investor or trader begins to believe that they have a special "talent" for stocks and shares. They begin to believe that they are naturally better than the average trader.
The outcome, before too long, is that the investor's belief in their own ability results in over confidence. This over confidence results in trading too many stocks or trading without managing the risk inherent in any trade. Unfortunately the stock market has a nasty habit of slapping down over confident traders with a big loss.
So remember, every trade you take has risk which you need to manage. If you manage your risks and enjoy the chance string of winning trades from time-to-time you will be successful and you will avoid the Market Slap! - 23210
About the Author:
Learn more about how to trade shares with Just Shares and visit our website where you can find out all about Just Shares' share trading course and how Just Shares can help you be successful in trading shares.
posted by X - Men @ 1:33 AM
0 Comments
0 Comments:
Post a Comment
Subscribe to Post Comments [Atom]
<< Home