How to Deal with Success in Investing
What follows is a true and factual story. A University in the US did an experiment to understand more about the psychology of success. This experiment has subsequently been repeated a number of times at different places and by different people.
The experiment involved getting people to guess the outcome of tossing a coin. You know how it goes, I toss the coin, you guess the outcome and then you are either right or wrong.
On probability, if the coin is tossed you have a 50% chance of guessing correctly which way it will end up. The experiment required 500 tosses of the coin and the outcome followed the laws of probability of around half of the tosses producing a correct guess. This probability outcome is fairly well understood by the experiment subjects, and people generally.
However, within the 500 tosses you will have a good chance of stringing together a number of tosses in a row that you will guess correctly. This is where the psychology of success comes into effect. The experiment asked it's subjects how they felt about their performance in tossing the coin and guessing the correct outcome at various times during the experiment.
What they found was that when people were having successful runs - four or five or six correct guesses in a row - that they believed that they themselves were responsible for this success. Reasons ranged from, I am getting better at this, to I am now concentrating harder and that is improving my performance.
Remebering that the experiment subjects were fully aware of the law of probability at work in the experiment, with a likelihood of 50% of the outcomes being correct and 50% of the outcomes being incorrect, but believed that their talent and/or ability was attributing to their success. Quite disturbing in its contradiction.
The same contradiction happens with traders and investors all the time when trading or investing in the stock market. This is especially observable with new traders and investers. The trader/invester may grow to believe they have "special talents" after a string of winning trades. This may make the trader/invester believe that they are somehow better, or have a special talent for trading, whereby their success has really only been because of probable "chance".
The way to manage chance success in your trading/investing is to not become over confident and forget your risk management strategies. Enjoy your success but don't forget the risks. If you do not manage the risk of future trades properly or take on too many trades and over-extend yourself then you may leave yourself volunerable to the Market Slap. The stock market has a habit of slapping down traders who become over confident and take on too much risk with a large loss.
So remember, every trade you take has risk which you need to manage. If you manage your risks and enjoy the chance string of winning trades from time-to-time you will be successful and you will avoid the Market Slap! - 23223
The experiment involved getting people to guess the outcome of tossing a coin. You know how it goes, I toss the coin, you guess the outcome and then you are either right or wrong.
On probability, if the coin is tossed you have a 50% chance of guessing correctly which way it will end up. The experiment required 500 tosses of the coin and the outcome followed the laws of probability of around half of the tosses producing a correct guess. This probability outcome is fairly well understood by the experiment subjects, and people generally.
However, within the 500 tosses you will have a good chance of stringing together a number of tosses in a row that you will guess correctly. This is where the psychology of success comes into effect. The experiment asked it's subjects how they felt about their performance in tossing the coin and guessing the correct outcome at various times during the experiment.
What they found was that when people were having successful runs - four or five or six correct guesses in a row - that they believed that they themselves were responsible for this success. Reasons ranged from, I am getting better at this, to I am now concentrating harder and that is improving my performance.
Remebering that the experiment subjects were fully aware of the law of probability at work in the experiment, with a likelihood of 50% of the outcomes being correct and 50% of the outcomes being incorrect, but believed that their talent and/or ability was attributing to their success. Quite disturbing in its contradiction.
The same contradiction happens with traders and investors all the time when trading or investing in the stock market. This is especially observable with new traders and investers. The trader/invester may grow to believe they have "special talents" after a string of winning trades. This may make the trader/invester believe that they are somehow better, or have a special talent for trading, whereby their success has really only been because of probable "chance".
The way to manage chance success in your trading/investing is to not become over confident and forget your risk management strategies. Enjoy your success but don't forget the risks. If you do not manage the risk of future trades properly or take on too many trades and over-extend yourself then you may leave yourself volunerable to the Market Slap. The stock market has a habit of slapping down traders who become over confident and take on too much risk with a large loss.
So remember, every trade you take has risk which you need to manage. If you manage your risks and enjoy the chance string of winning trades from time-to-time you will be successful and you will avoid the Market Slap! - 23223
About the Author:
Want to find out more about share trading education then visit Just Shares' site on how to trade shares successfully with Just Shares Share Trading Course.
posted by X - Men @ 7:03 AM
0 Comments
0 Comments:
Post a Comment
Subscribe to Post Comments [Atom]
<< Home