Core lesson stock concept while dragging win will go wrong Money Tips

Category: Money tips Release Date: 2006-04-22

2002 Nobel laureate in economics, Kahneman's "prospect theory" of behavioral economics research to open ground, reveals the irrational factors affect human choice behavior, describe and explain people's judgments under conditions of uncertainty and decision-making行为.

Study confirmed that, due to the complexity of the economic environment, the future uncertainty, incomplete information, as well as the limited capacity of human knowledge, human decision-making will be affected by their limited capacity and the objective reality is now beginning to grasp Shenglang Jiancang the bottom of the list of institutions train is not necessary to earn the foreign exchange market is only a sure win
. To sum up is to say, in economic behavior, human reason is often limited.

There are three basic principles of prospect theory: in a state of benefits, most people prefer to avoid risk; in a state of loss, most people are willing to bear risk; most people are more sensitive to losses than to gains.

The use of prospect theory, you can face a number of human nature, "weaknesses" and understand the irrational behavior of investment and improve trade decision-making.

Prospect theory tells us that a majority of people in the income state, are often cautious, risk-averse, like just leave, for fear of losing existing profits. At this point investors have a strong profit-taking tendencies, manifested in the futures market is like to make money in a good position to sell profitable. Statistical study confirmed that the financial markets at home and abroad, there is a "disposition effect" refers to the wishes of investors to sell profitable positions is much larger than when sold at a loss.

Principle 2 tells us that the prospects for the majority of people are loss-making state, would be extremely unwilling unwilling to face a loss, but are willing to bear greater risks, and good luck trying to Bo in order to recover losses; reflected in the futures market is like in will continue to hold down money-losing positions. Statistical data further confirmed that the loss of traders to hold positions much longer than the time to hold profitable positions. Futures market, all the "explosive storage" means the direct cause is a loss of position in the face when you can not stop.

Principle 3 prospects tell us that most people get the degree of sensitivity loss and there are significant differences, in the face of the painful losses to be much higher than when the face of happiness. Reflected in the futures market is that, for matching funds, we lose money when the pain will be much larger than when earned brings happiness.

Proceeding from the principle of prospect theory, we can raise a number of trade concept correctly. Such as: use "exerted by" gambling mentality in the futures market, trading is a terrible act of mentally retarded. According to prospect theory, we can see that the losses were only in the negative state, be willing to Bo, but this time lose the greatest probability.

Faced large losses, traders tend to have resigned, laissez-faire attitude of betting on orders shipped Bo. This way of thinking and behavior occurs when the outlook is undoubtedly contrary to principles. So, when you think the loss to numb the mercy of the markets when it is most in need of a sober and out of your time.

Prospect theory can be deduced from the futures market, traders in a loss transaction process, that is, the stock market because of greed but because of hope, waiting, holding a result of losses due to a small gain but to give up; come and go less and less money, behavior was difficult to change.

Transaction, the normal performance of most people is wrong then the drag, winning will follow. This behavior is held on the wrong trade reform that is precisely contrary to the core concept.