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Collective Psychology: Effects on Stock market as a Trader

Posted By On 4/03/2009 08:57:00 AM Under

1. It is human psychology to have wish thinking and it rarely yields reults as the same is illustrated in belowexamples:
(a) Stock investors who saw the Dow peak in 1929 were able to see the same high levels in the early 1950s.
(b) Japanese investors saw Nikkei peak in 1989 and are yet to see the half-way of Nikkei till today.
(c) Similar wish thinking is prevalent in U.S. where homes were selling at $221,900 some time back and now prices are down to around $165,000 and people are just praying that they get the old prices.

2. One can summarise these sentiments as predictable sentiments as it reflects collective psychology, and collective psychology is cyclical and it moves in patterns. Thus if we keep this at the back of our mind we will be able to fathom bad news more willingly and without any reluctance.

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