The Biggest Threat to Your Own Investment Success Could be Yourself
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 asked people (experiment subjects) to guess the outcome of tossing a coin and measured how many times they guessed correctly and incorrectly.
The experiment involved tossing the coin 500 times and the law of probability says that you would guess right around 250 times or 50% of the time. This outcome is the same no matter how high or how low your IQ is, no matter where you went to school or how much you have studied the art of coin tossing. Just about everyone understands this and knows it.
In any 500 tosses there is a fairly good chance that you will put together several runs of guessing five or six tosses in a row correctly. This is where the psychology of success kicks in. The experimenters asked the people guessing the outcome of the coin tosses their opinion on how they felt about their own performance at various times during the experiment.
What the experimenters discovered was that when people were having successful runs - four or five or six correct guesses in a row - they developed a belief that their own skill and expertise was responsible for this success. Reasons stated included: I am now concentrating harder and that is improving my performance, I am getting better at this; through to, I have developed the skill of how to guess a coin toss more accurately.
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.
This same effect occurs with people investing in the stock market all the time - and this is especially the case with people new to investing and trading. The investor or trader begins to believe, after a winning trade or two that they have some super "talent" for picking stocks and shares. They begin to believe that they have some natural talent that makes them better than the average trader.
The outcome, before too long, is that the investor's belief in their own ability results in over confidence. This over confidence results in trading too many stocks or trading without managing the risk inherent in any trade. Unfortunately the stock market has a nasty habit of slapping down over confident traders with a big 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! - 23311
The experiment asked people (experiment subjects) to guess the outcome of tossing a coin and measured how many times they guessed correctly and incorrectly.
The experiment involved tossing the coin 500 times and the law of probability says that you would guess right around 250 times or 50% of the time. This outcome is the same no matter how high or how low your IQ is, no matter where you went to school or how much you have studied the art of coin tossing. Just about everyone understands this and knows it.
In any 500 tosses there is a fairly good chance that you will put together several runs of guessing five or six tosses in a row correctly. This is where the psychology of success kicks in. The experimenters asked the people guessing the outcome of the coin tosses their opinion on how they felt about their own performance at various times during the experiment.
What the experimenters discovered was that when people were having successful runs - four or five or six correct guesses in a row - they developed a belief that their own skill and expertise was responsible for this success. Reasons stated included: I am now concentrating harder and that is improving my performance, I am getting better at this; through to, I have developed the skill of how to guess a coin toss more accurately.
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.
This same effect occurs with people investing in the stock market all the time - and this is especially the case with people new to investing and trading. The investor or trader begins to believe, after a winning trade or two that they have some super "talent" for picking stocks and shares. They begin to believe that they have some natural talent that makes them better than the average trader.
The outcome, before too long, is that the investor's belief in their own ability results in over confidence. This over confidence results in trading too many stocks or trading without managing the risk inherent in any trade. Unfortunately the stock market has a nasty habit of slapping down over confident traders with a big 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! - 23311
About the Author:
Looking to find the best share trading course, then visit Just Shares to find the best advice on how to trade shares and share trading education.
posted by Mr. Forex at
2:45 AM
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