Understanding Investment Psychology
Behavioral finance reveals how emotions and cognitive biases systematically influence investment decisions, often leading to suboptimal outcomes.
Fear & Greed Cycle
These primary emotions drive most investment mistakes. Fear causes panic selling at market lows, while greed leads to buying at peaks. Understanding this cycle helps investors recognize when emotions are overriding rational analysis and implement strategies to counteract these natural tendencies.
Cognitive Biases
Mental shortcuts that worked in primitive environments often backfire in financial markets. Confirmation bias makes us seek information supporting our beliefs, while anchoring bias causes overreliance on first impressions. Loss aversion makes losses feel twice as powerful as equivalent gains.
Market Psychology
Markets reflect collective emotions and behaviors of millions of investors. Bubbles form when optimism overrides fundamentals, while crashes occur when fear dominates. Understanding crowd psychology helps identify when markets are driven by emotion rather than value, creating opportunities for rational investors.
