Understanding Psychology- Understand the sentiment and you will identify the Trend
However, in terms of financial well-being, these forces are completely useless and downright deadly. The forces we speak of are Fear, Euphoria or indecisiveness, etc. The idea here is to fear what the masses do not fear and embrace what they fear. If you want to become a better investor, a better market timer, then you owe it yourself to understand this very simple yet incredibly powerful force that controls and directs every human action.
These instinctual forces might be very useful in terms of delivering us to safety when it comes to any threat to our physical well-being. However, in terms of financial well-being, these forces are completely useless and downright deadly. The forces we speak of are Fear, Euphoria or indecisiveness, etc. The idea here is to fear what the masses do not fear and embrace what they fear. If you want to become a better investor, a better market timer, then you owe it yourself to understand this very simple yet incredibly powerful force that controls and directs every human action.
This UnderstandingPsychology for article Psychology for dummies is our attempt to help shed light on this misunderstood field which is very often confused with the concept of contrarian investing. Contrarian investors, in general, have very little knowledge of the inner working of this field. They are for the most part fashion-contrarians and not real-contrarians. Fashion contrarians want to make a statement or create the illusion that they are taking a position that is opposite to that of the masses.
Understanding Psychology: Fashion contrarians are just as lost as the masses
In reality, these fashion-contrarians ignore the simplest rules when it comes to mass psychology and investing. These fashion-contrarians are in fact, nothing more than idiots, who assume they are geniuses because in a sea of idiots they seem to be the least idiotic. What is the most basic rule these geniuses ignore? They fail to understand that Mass Psychology is the study of extreme behaviour; One does not oppose the masses for the sake of opposing them. One takes an opposing position only when the sentiment has reached a boiling point.
Understanding Psychology; a graphical illustration of the concept
We hope this article helps shed some light on this simple but grossly misunderstood field. We will continually be adding to this series so feel free to bookmark this page or subscribe to our newsletter.
Random thoughts on the Understanding Psychology topic
The masses always panic and are always driven by emotion. Emotions drive the markets so understand this, and you are one step closer to becoming a better investor.
- Learn from History; study how the masses reacted during the 1929 crash, the 1987 crash, the Dot.com bust, the financial crisis of 2008, etc. History is nothing but a repetition of stupidity. In other words, stupid people doing the same stupid things and hoping for a different outcome; this is also referred to as insanity.
- Don’t give in to panic. When the masses panic, you should buy, when the masses are happy you should sell. Mass psychology is the study of mass emotion. Want to know on this concept you can go to this page that we put up for novice investors Mass Psychology and the markets.
- Once you understand the above two concepts, it is easy to spot good investments. One way is to use a stock screener such as Finviz. History and mass psychology are the two most critical areas; you should consider focusing on.
Other articles of Interest
A clear illustration of the mass mindset