There is a difference between banker thinking and retail thinking. On the one hand, the banker and retail investors are relative concepts, and on the other hand, the overall economic strength is different. The banker can use his capital advantage to control the rise and fall of foreign exchange, while the retail investor can only judge whether to buy or sell according to the rise and fall of foreign exchange.
However, the foreign exchange market has a certain delay, if retail investors only judge according to the reaction of the market, then it will always be much later than the banker, so we should understand the retail thinking, and then abandon the retail thinking and think in the banker’s thinking, so as to really gain a long-term foothold in the foreign exchange market.
What is retail thinking from the basis, retail investors have no second level of thinking, no logical reasoning ability;
From the level, retail investors have no pattern, no vision;
From the operation point of view, retail investors have no independent judgment, independent operation ability.
If we want to abandon the retail mentality, it is necessary from the basis, level, operation to learn progress, constantly grow, the first point is: we want to abandon the closed mentality, keep an open mind.
First, what are the common retail thinking?
Anchoring Bias is the tendency of the mind to be swayed by the first piece of information that comes in, like an anchor sinking to the bottom of the sea to anchor your mind somewhere.
When buying something, if the other party says 50 yuan, you cut down to 25 yuan, think cut in half, almost.
What if they say $30?
You’re gonna get down to 15 bucks.
So why not cut it to $15 in the first place?
Because you unconsciously refer to the original offer.
When we invest, we receive a huge amount of information every day, some of which can inadvertently become our anchor.
For example, originally our investment principle was not to touch the stock PE>20.
As a result, in the bull market, when I saw that all the stocks with PE ratio of more than 30 times rose well, I would shake my faith and think that it is possible to relax the screening principle, so I would buy the stocks with PE ratio of more than 30 times and become a picker.
Also, from the moment we buy a stock, the purchase price sticks in our minds.
We can’t help but use it to determine whether the existing price is high or low.
For example, we once bought a stock at 15 yuan, and then it fell all the way to 9 yuan, but we still don’t want to sell.
Just because we bought it at $15, we have no reason to think the stock should go above $15.
Clinging to the price that was anchored at the time, rather than rationally analyzing the current level of stock prices.
That’s why so many people kept buying at the bottom when the market crashed, only to remain trapped.
It is also the result of retail mentality.
To avoid the anchoring effect, first go back to the essence of the stock, analyze its value, and then record the reasons as you buy and sell.
If the reason isn’t compelling, don’t do it.
thebackfireeffect is when a wrong piece of information is corrected and if the corrected information contradicts the original belief, the Backfire Effect increases trust in the (original) misinformation.
During Japan’s real estate bubble in the 1990s, people ignored supply and demand and simply believed that “land will not depreciate.”
During the Internet bubble in the United States, people ignored the fact that the stock price would eventually return to the value created by the company, just because they believed that the Internet was an emerging industry and could not be treated with the original valuation method, so it was normal to have a P/E ratio of hundreds of times.
Looking at the stock market crash in 2015, the suspension of trading of LeEco in 2017, and even the current “quarter’s shame” of Baima stock, a large wave of figures who once sang praises suddenly silenced their voices.
Are there no signs of these events?
No, it’s just that obvious market irregularities and corporate financial problems were ignored and constantly rationalized.
“Because I want to buy this stock, this stock is worth investing in.”
This history has been repeating itself and will continue to do so.
Want to avoid emotion, do a rational and objective investor, abandon retail thinking, first of all must have strict investment discipline, and then to sink down to do in-depth industry research, stock analysis, can distinguish the surrounding is noise or truth.
3. Selective Memory is one of the psychological manifestations of audience selection. It refers to the basic tendency of the receiver to the received information, that is, to remember the content that is most consistent with their own ideas.
What’s the most successful stock you’ve ever invested in?
The biggest failure?
Many people respond to the first question with an open mouth, while scratching their heads over the second.
We always remember the successful investment experience, but for the experience of loss, we choose to forget.
Or find a variety of “reasons” to explain the reasons for failure at that time, such as “overall market decline”, “80/20 divergence”, “earnings mines” and so on.
In fact, failure to reproduce the methodology’s success often implies greater risk.
Because it leads us to be blindly optimistic that the next time we invest, we can do it too.
The result is likely to be a foot in the ground, never to recover.
Keeping an honest record of your investment experiences, especially losses, can effectively suppress this selective memory and overcome retail mentality.
We’ve found that many of the best fund managers have a common habit: they keep a record of why they bought all of their important investments so they can keep track of what has happened to the fundamentals since.
If the reason to buy no longer exists, get out.
Mental Accounting is an important concept in behavioral economics.
Due to the existence of consumer psychological account, individuals often violate some simple economic algorithms when making decisions, and thus make many irrational consumption behaviors.
Investors tend to have vivid memories of buying a stock that quickly turned a profit of more than 10%.
And after the loss, often will think that the loss is the “last profit”.
In a bull market, constant “buying”, “taking profits”, “buying” and “taking profits” can greatly increase investors’ confidence or “ego”.
In a bear market, investors tend to consume their accumulation or even lose their principal in a bull market through constant “trial and error”.
Subconsciously, we don’t think of “profit” as our own “principal,” but as a bargaining chip for the next “trial and error.”
So many investors after a bull and a bear often appear is the principal reduction, rather than gradual accumulation.
Invest well and remember that every penny is worth every penny.
If you want to snowball, you have to add up.
Don’t be controlled by retail mentality.
5. The Gambler’s Fallacy, also known as Monte Carlo’s fallacy, is the mistaken belief that the chance of an event occurring in a random sequence is related to a previous event, that is, the chance of its occurring increases with the number of times the event has not occurred before.
What’s the probability of getting heads on the first 10 flips of a coin and getting heads on the 11th?
Can clearly know that 50% of the people must be more than a few.
So why is it so tempting to bargain when a stock has fallen for three days in a row?
This is a heavy retail mindset.
Indeed, in an overall downward market, consecutive declines are more likely to signal a major crash.
Is there an egg under the nest?
Under the environment of mud and sand, do not easily “bottom fishing”.
Chances are you don’t even have a floor anymore. You’re going to the basement.
Then again, in the stock market may not be applicable to bottom-fishing, in the fund can play a big role.
In particular, investment in index funds, when the price is down to buy low chips, even if it has been falling, can also rely on batch construction amortization cost.
When the market picks up, it’s easy to get out of the box.
Loss aversion is when people face equal amounts of gains and losses and find the losses more unbearable.
The negative utility of the same amount of loss is 2.5 times of the positive utility of the same amount of gain.
Psychological research has found that we need to gain 250 yuan to ease the grief of losing 100 yuan.
People are more sensitive to losses and less willing to make losses than gains.
For stocks, we have to forget about cost.
When the situation is not right, you should give up.
The ancient Greek philosopher Heraclitus said, “No one can step into the same river twice.”
There’s no telling how many people got burned in the 2015 crash and how many will jump in when the next bull market comes around.
Getting rich overnight is speculation, not investment.
After we know the above retail thinking, we should pay more attention in the investment, do not be these retail thinking around our investment, so that we can really profit through stock investment.
Two, retail four “dead point”, you in which?
Did the retail bargain hunters get it right this time?
Time will probably have to tell.
But if history is any guide, getting in is easier than getting out.
Many retail investors can’t get out before the bubble bursts/the next crash, and they can become victims of a stampede.
This is just one of the “death method”, a forum someone collated the retail 5 kinds of death method: ¢Ù chase up stop, rush high fall, buy losses.
(2) Disorderly bottom, numb bottom, continue to fall.
¢Û When you sell, you go up. When you sell your front foot, you pull your back foot up.
¢Ü buy down, numb chase up, down stop losses.
No time, work to play stock, no empty watch.
So why do retail investors keep losing money?
Zi Fengling mentioned in her diary that retail investors have the following four kinds of problems.
First, the idea that trading is easy applies to most novices.
A lot of people always think that doing a trader is very cool, looking at a lot of monitors, move the keyboard, move the mouse, you can operate millions of millions of funds, monthly income of millions.
In addition, many media reports have been giving us such a feeling that certain person makes hundreds of millions of dollars in futures, and certain person makes 10,000 times in a year.
These things happen almost every day, but they never tell us how risky it is or how many times it’s blown up.
No one’s going to give you a running tally, what’s their average return for such a long period of time?
Risk and return are always proportional, can increase so many times, its risk must be very big.
No matter how many times it’s multiplied, it only takes one blowout and it’s all gone.
Because of the low trading threshold, many people just started to be overconfident, but also underestimate the market.
Most retail investors enter the trading world simply to make money, especially a quick buck.
This can understand why retail investors always prefer to do short-term, because the money in and out of the short time, can be very intuitive to see their profits and losses.
Retail investors, for example, do not hold on to a stock for long.
According to DALBAR, a quantitative analysis of U.S. fund investors, the average American holds a stock or bond fund for three years.
This means that for most people, every three years they sell their funds and buy a new one.
The payoff at this frequency of operation can be imagined.
Three, three days of fishing, two days of sun net this problem is not only for novices, many do not make a profit for many years the veteran more or less will appear this problem.
Many novices, when learning trading, will surely know that the discipline of trading is very important, and that one of the psychological elements of successful trading is execution, as long as the continuous implementation of a system can be profitable.
Let’s not discuss whether the system they implemented is effective. They always feel that the system is not working after several losses, so they keep changing the system, rather than trying to understand a system thoroughly.
We all know that a mature trader must have his own trading system, but the construction of a trading system is a long process, if there is no certain experience and capital, it is really difficult to build a trading system of his own, so in this case, retail investors began to trade freely, according to their own mood to do.
About this point, Wu citizen gave a very vivid description of psychological activities.
Stock selection — (psychological activity: this time must choose a good stock to earn back the last loss) after buying — (psychological activity: the transaction is completed, and so on the number of money) holding — (psychological activity: ah, how did not run according to my imagination ah) holding — (psychological activity:
Oh, it fell again, is it time to stop the loss, set dead how to do) sell the stop loss — (psychological activity: really bad luck, stop the loss, the next time to make money back and don’t touch the stock) sell after — (psychological activity: vomiting blood, just sold on the rise, why the injury is always me) buy again — (psychological activity:
This time, the money will be back.) From buying to holding, to selling, to buying again, each step is subject to an endless cycle of emotions.
In his book Thinking Fast and Slow, Nobel laureate Daniel Kahneman delves into emotional trading, which essentially revolves around the following five points: ¢Ù The anchoring effect is embedded in the buying price of an asset from the moment we buy it.
We can’t help but use it to determine whether the existing price is high or low.
For example, we once bought a stock at 15 yuan, and then it fell all the way to 9 yuan, but we still don’t want to sell.
Just because we bought it at $15, we have no reason to think the stock should go above $15.
Clinging to an anchor price at the time, rather than rationally analyzing the current highs and lows, is why so many people continue to bargain when the market crashes, only to remain trapped.
We always remember successful investment experiences well, but for the experience of loss, we choose to forget, or find a variety of “reasons” to explain the reason of failure, such as “the overall market decline”, “80/20”, “financial mines” and so on.
In fact, failure to reproduce the methodology’s success often implies greater risk.
Because it leads us to be blindly optimistic that the next time we invest, we can do it too.
The result is likely to be a foot in the ground, never to recover.
¢Û Mental account investors tend to have very vivid memories of buying a stock that quickly made more than 10%.
And after the loss, often will think that the loss is the “last profit”.
Subconsciously, we don’t think of “profit” as our own “principal,” but as a bargaining chip for the next “trial and error.”
Therefore, in a bear market, investors tend to consume their accumulation or even lose their principal in a bull market through constant “trial and error”.
¢Ü Gambler’s Fallacy What is the probability that the first 10 flips of a coin will be heads, and the 11th will be heads?
Not many people can say 50%.
Similarly, when a stock falls for three days in a row, many people are tempted to buy at the bottom, rather than considering that it is more likely to mean a major crash.
¢Ý Research on the psychology of loss aversion has found that we need to gain 250 yuan to ease the grief of losing 100 yuan.
People are more sensitive to losses and less willing to make losses than gains.
These three problems may be the main reasons why retail investors have repeatedly failed and failed.
Of course, not all retail investors lose money. It’s just that being the 5% that beats the market and makes a steady profit is harder — starting with recognizing what your problem is, being “alone” when other retail investors rush in, and sometimes even going against the grain.
