RE: Is it squeaky bum time?22 Mar 2019 11:40
knutsford - why do people always react this way, and can the apparently 'natural' reaction be overcome ?
Humans have a very non-linear system of emotions - they greatly overestimate the pain of losing ten pounds versus the pleasure of winning ten pounds.
This is because humans evolved when it made sense to be risk averse - going too close to the sabre toothed tiger might get you a slightly better chance of having a meal, but it also risked a grisly death - thus best to stand off and chuck spears and rocks at the old and decrepit ones.
As a result if someone sees their paper winnings 'ebbing away' they become restless, even when the fundamentals have not changed. They fear losing money more than losing out on the opportunity to make it - as such they bail out telling themselves they are being prudent, when in fact they are guaranteeing that in the long run they are less likely to make a profit.
Once you understand that that it is this psychology that market players are taking advantage of it is somewhat easier to resist falling for the tricks.