Financial encyclopedia

When we make investment decisions, we will be affected by various psychological traps and emotional factors. For example, when the market price falls, everyone will sell, feel panic, rush to sell, but ignore the original strategic objective. The reason is likely to be stepping in the "psychological trap" :

Conformity bias

The tendency to believe and follow the actions of others, especially in uncertain situations, makes us more likely to be influenced by the group and ignore our own judgment, which is typical of "herding".

Loss aversion

Because we hate losses, we prefer to take risks to avoid losses rather than pursue gains, which often leads us to make irrational decisions.

Anchoring effect

When we make judgments, we tend to be influenced by a reference point or "anchor" even if that reference point has nothing to do with the issue itself. This bias can lead us to make systematic mistakes.

overconfidence

They tend to overestimate their own abilities and knowledge, underestimate risks, and are often overconfident in their own predictions and decisions, ignoring the influence of external factors.

If you don't recognize and overcome these pitfalls, you are likely to make some irrational investment decisions that will ultimately affect your financial well-being.

Be alert and reflect on your motivations and logic.

Actively seek out different points of view and avoid overconfidence and anchoring.

Develop a clear investment strategy and risk appetite to reduce the impact of mood swings.

When building your portfolio, diversify your investments appropriately to reduce the risk of a single decision.

Only by identifying and overcoming these psychological traps can we truly become rational investors and achieve our long-term financial goals.