Since last month, Jason holds a position on DELL. He's already in profit, and profit forecasts irningov promise, in particular, because of entering new markets. On the other hand, the economic indicators look grim. Business news full the stories of cuts in companies that can easily be put up for sale new computers at low prices. Jason was in a quandary. He is proud of his decision to buy a DELL, and hopes to undertake profitable deal, but the questions' I have been trading on the news? I listen to the media and ignoring other more important economic indicators? I must now sell or even hold a long position? " do not give rest. He wants make a profit, but on the other hand, he did not want to be a winning position into a loss-making.
It is one thing – a wrong assumption about the opening position, and quite another – to allow the transaction profitnoy turn into a loss. Inaction – that's the main reason for regret. What to look for possible causes for regret, why not sell right away, do not it better to take profits and to experience the pride? The interaction between regret and pride affect many investment decisions. On the one hand, people prefer to feel proud, basking in the glow of winning trades, but on the other hand, 'let him come profits. " Hard to let a winning trade develop. Suddenly it will unfold, and inaction may subsequently result in regret. According to behavioral economists, regret and pride – the two most common and powerful emotions related to investment decisions. Traders and investors are looking for an occasion for pride and avoid regret.
Pride comes when we reached an important goal. It brings a feeling of extreme satisfaction. Regret is when we was a bad decision. According to behavioral economists, the need for pride and fear of regret forcing traders and investors close winning positions prematurely and unnecessarily perederzhivat unprofitable. Here's how it happens. Closing unprofitable transaction forcing the investor to recognize that his trading plan was flawed. Instead of feeling pride he feels guilty, that is an unpleasant emotion. Hard faced with regret from a bad decision, so this decision is postponed. On the other hand, closing a winning position gives the right to boast. People will feel proud great victory and bask in the glory of a good transaction. What is wrong with this strategy? Dr. Terrance Odean study showed that a winning position, in all probability, will remain a winning one. If the trader is held back her, it would bring more revenue. Rushing closing it for the sake of a sense of pride means the satisfaction of pride at the expense of greater profits. However, early closure of a losing position would be far more wise move. Losing position tend to deteriorate future. Do not let regret and pride to govern themselves. Cover the losses and hold returns.