Friday, 31 July 2015

What is Investment Psychology?

  • By Claire
  • Investment psychology, in a nutshell, is the process by which an investor watches established levels of value in the market to make decisions for future investments. In other words, it is how investors think when considering whether to buy or sell stocks, or invest in any other way.
    Investment psychology has been well-studied and there is an extensive amount of information available on the topic; however, to get a basic grasp of the concept, here are some of its main theories:
    Contrarian Theory – This theory takes a look at why it seems people buy or sell stocks in contrast to how consumers spend their money. Consumers seem to buy when prices are low, while a common investor behaviour is to buy when prices are high. It also notes that some people playing the stock market simply follow the crowd to avoid making embarrassing mistakes alone.
    Prospect Theory – This theory suggests that people will respond differently to the exact same situation depending on whether it is presented to them as a loss or a gain. Inside this theory is ‘loss aversion,’ which means that people are willing to take more risks if they feel it will help them avoid losses, but won’t do it as much to realize gains.
    Regret Theory – This looks at the emotional reaction people have after making an error in judgement. This applies to having bought a stock that has now gone down, not buying one that went up, or selling at inopportune times.
    Anchoring – This is an investor behaviour inherent in those who assume current prices are the correct prices because they lack better information. In this phenomenon, people give a recent experience too much credit, when in actuality, it may not occur again any time soon.
    Market Over- or Under-Reaction – This is the market-wide consequence of investors relying too heavily on what they find in the news. As a result of the good or bad news they've learned, they may become too optimistic or pessimistic – and the prices in turn rise too high or fall too low, leading to extreme events like manias and crashes.
    As many experts have discovered, playing the stock market not only involves the simple desire to buy or sell stocks; it also comes with it a whole world of investment psychology. But it’s not a bad thing because learning more about why people invest the way they do can help to better understand the unpredictability of the market and what it will likely do next.

    Quote for the day

    “Conventional thinking, particularly around important turning points, is usually not very helpful because it tends to focus on the extrapolation of past trends into the future.” - Tony Boekh

    CSE - Percentage wise Top 25 Gainers and Losers in July 2015 & YTD

    Top 25 Gainers in July 2015

    Top 25 Losers in July 2015

    Top 25 Gainers YTD (Year-to-date)

    Top 25 Losers YTD (Year-to-date)

    Thursday, 30 July 2015

    30-Jul-2015 CSE Trade Summary

    Quote for the day

    “If you can be patient and ignore the crowd, you will likely win. But to imagine you can, and to then adopt a flawed approach that allows you to be seduced or intimidated by the crowd into jumping in late or getting out early is to guarantee a pure disaster.” - Jeremy Grantham

    Wednesday, 29 July 2015

    29-Jul-2015 CSE Trade Summary

    Quote for the day

    “The people who want to be recognized as the greatest traders are probably not the greatest traders. Egos get in the way of the process. In my opinion, you never want to be the largest player in the pit.” - Blair Hull

    Tuesday, 28 July 2015

    Tribute to Dr. A.P.J. Abdul Kalam

    Srilankan Share Market Blog deeply saddened by the demise of Dr A.P.J. Abdul Kalam, who truly inspired a new generation.

    We selected 12 of his Quotes which are some how related to trading.

    28-Jul-2015 CSE Trade Summary

    Quote for the day

    “The first principle is that you must not fool yourself, and you are the easiest person to fool.” - Richard Feynman

    Monday, 27 July 2015

    27-Jul-2015 CSE Trade Summary

    Quote for the day

    “In a nutshell, if you're too conservative, you won't do any trades, and if you're too aggressive, you're going to get picked off a lot. The trick is to try to strike a balance between the two.” - Jeff Yass

    Sunday, 26 July 2015

    "The typical path of how people respond to life-changing inventions"

    1. I've never heard of it.
    2. I've heard of it but don't understand it.
    3. I understand it, but I don't see how it's useful.
    4. I see how it could be fun for rich people, but not me.
    5. I use it, but it's just a toy.
    6. It's becoming more useful for me.
    7. I use it all the time.
    8. I could not imagine life without it.
    9. Seriously, people lived without it?
    Source:  Innovation Isn't DeadBy Morgan Housel 

    Quote for the day

    “Anything outside yourself, this you can see and apply your logic to it. But it's a human trait that when we encounter personal problems, these things most deeply personal are the most difficult to bring out for our logic to scan. We tend to flounder around, blaming everything but the actual, deep-seated thing that's really chewing on us.” -  Lady Jessica

    Saturday, 25 July 2015

    31 Questions That Will Change Your Life

    By Anna Chui
    Who said that there had to be an absolute answer for each and every question? Sometimes the ability to ask yourself questions’ an act to challenge yourself and help you to be a better person. Try the following questions that may change your life.
    1. Are you doing what you truly want to do?
    2. Do you have a dream to follow?
    3. Are you proud of what you’re doing or what you’ve done?
    4. How many promises have you made and how many of them have you fulfilled?
    5. What’s the one thing you really want to do but have never done so, and why?
    6. Have you ever failed anyone who you loved or loved you?
    7. Will you take a shot if the chance of failure and success is 50-50?
    8. If you could travel to the past in a time machine, what advice would you give to the 6-year-old you?
    9. Will you break the rules because of something/someone you care about?
    10. Have you ever abandoned a creative idea that you believed because others thought you were a fool?
    11. What would you prefer? Stable but boring works or interesting works with lots of workload?
    12. Are you afraid of making mistakes even though there’s no punishments at all?
    13. If you would clone yourself, which of your characteristics you wouldn’t want to be cloned?
    14. What’s the difference between you and most of the other people?
    15. Are you making some influences on the world or constantly being influenced by the world?
    16. The thing you cried for last time, does it matter to you now or will it matter to you 5 years later?
    17. Is there anything you can’t let go of but you know you should?
    18. Do you remember anyone you hated 10 years ago? Does it matter now?
    19. Which makes you happier, to forgive someone or to hate someone forever?
    20. What are you worrying about and what’s the difference if you stop worrying about it?
    21. If you’d die now, would you have any regrets?
    22. Which one would you prefer, having a luxurious trip alone or having a picnic with people you love?
    23. Who do you admire and why?
    24. Is there anyone who inspired you and made you who you are today?
    25. What’s the thing you’re most satisfied with?
    26. When was the last time you laughed and what did you laugh at?
    27. Are you doing anything which makes you and people around you happy?
    28. Is there anyone who you love or loves you?
    29. When was the last time you really talked with your parents/family?
    30. If happiness is a currency, how rich do you think you are?
    31. If today’d be the end of the world, what’d you do?
    Are there any questions which changed your life but not mentioned here? Do share with everyone of us.

    These 4 Questions Will Keep You From Making Trading Mistakes

    By Rolf

    Often, as traders we have periods where everything seems to go well and we have one winning trade after another. And then, there are these times when nothing seems to work and you give back all your profits, and then some. Or how often has one bad trade wiped out all your previous gains? Often, these periods of ‘bad luck’ could have been avoided by asking the right questions about your own trading and risk management.

    In the following article we give you 4 questions that you should always ask yourself when your trading seems to deviate from the norm.

    Are you impeccable?

    Question 1: What’s the motive behind increasing your position? Are you really a better trader? Is failing really impossible?

    We are starting with one of the biggest amateur mistakes traders make. In winning streaks, traders tend to increase their position size because they believe that their trading strategy is all of sudden unfillable or they believe that their ‘gut’ feeling is telling them what the right thing is to do.

    “In a storm, even turkeys can fly.”

    Winning streaks are normal and they will happen to all traders. The worst thing you can do in a winning streak is to increase your position size because sooner or later, you will have a losing trade. Traders who increase their position size will give back an unnecessary large amount of their trading profits when their streak ends.

    Should you be aggressive?

    Question 2: Are you playing catch-up? Do you want to get your money back?

    The second reason why traders increase their position size is because they just had a few losing trades and they want to get their account back to where it was. Again, trading behavior, especially when it comes to risk and money management, which deviates from the norm is very dangerous.

    There are two principles that all traders have to accept and live by to overcome this bias:

    1) You cannot force winning trades.

    2) The distribution between winning and losing trades is random. The outcome of your last trade will provide no information about what is likely to happen next.

    Therefore, your risk management should always follow the same principles, even if it means that recovering from a few losses takes a bit longer. In previous articles we said that you do not have to risk the same amount on any trade, but suddenly risking an unusual high amount does not fall into this category.

    Frequency of trades

    Question 3: Are your trades justified? Do you really see more signals and valid setups?

    Increasing trade frequency is another common mistake that leads to avoidable losses. Traders should carefully observe their trading behavior and ask themselves whether they are really seeing more valid trading opportunities or if they are entering a status of overtrading.

    Having a trading plan and a trade checklist can prevent overtrading because you will consciously and actively have to break your trading rules. Even better, print out your trading plan and checklist and put them next to your screen where you can see them at all times.print out your trading plan and checklist and put them next to your screen where you can see them at all times.

    Leave your ego at the door

    Question 4: Is adding to your position really what you should be doing? Why are you widening your stop loss? What if price does not turn around?

    Traders have to be confident in their abilities and about their strategy, but you cannot let your ego get in the way of a trade. Pride and taking losses personally are two traits that do not go well with trading.

    Adding to a losing position or widening stop loss orders are two of the most common reasons why traders blow up their accounts with just a few trades. At the same time, they are clear indicators that you can’t accept to be proven wrong and that you personalize losses. If you fail to overcome these negative trading patterns, becoming a profitable trader is impossible.

    The 4 Ps to establish a professional trading approach


    We can’t stress the importance of having a solid trading plan and a trade checklist enough. If you plan your trades in advance, you are less likely to make impulsive trading decisions or violate your rules.


    As a trader, nothing should come as a surprise. You plan your trades in advance, you define your risk and the worst-case scenario, you know when to get out, when to take profits and you process all available information. If you find yourself in a situation where you have to deal with the unexpected, something went wrong.


    To overcome negative trading patterns, tracking and analyzing your performance is the only way you can improve as a trader. Most traders make the mistake that they will never look at a trade again after they close their position and, therefore, leave out an important learning effect.


    Protection does not only include having a stop loss in place, but it goes much further. Once in a trade, traders often act like a deer staring into headlights, unable to make rational decisions. Where and when do you lock in profits? Do you move your stop loss order to protect your position? When will you take profits ahead of your target? What are the criteria that will make you close your trade early?


    A structured approach and a pre-defined game plan will keep you out of trouble. Trading should be a repetitive profession; each day you follow the same routine, you look for the same setups and just repeat your process over and over again. If you recognize that your behavior and actions deviate from the usual routine, something is going wrong and you have to counteract.

    Quote for the day

    “If you buy things you don’t need, soon you will have to sell things you need.” ~ Warren Buffet

    Friday, 24 July 2015

    24-Jul-2015 CSE Trade Summary

    Quote for the day

    “Do not save what is left after spending, but spend what is left after saving.” – Warren Buffet

    Thursday, 23 July 2015

    23-Jul-2015 CSE Trade Summary

    Quote for the day

    “Success is there to motivate us, not to keep us stagnant. Keep following your passion. You were not created to live a mediocre, safe life.” - Gary Player

    Wednesday, 22 July 2015

    22-Jul-2015 CSE Trade Summary

    Quote for the day

    “In the face of uncertainty, wisdom is to err on the side of pushing, to not give up. But you have to be ready to recognize when pushing is only ego, only weakness. You have to be ready to recognize when the pushing can turn to harm.” - Atul Gawande

    Tuesday, 21 July 2015

    21-Jul-2015 CSE Trade Summary

    Quote for the day

    “Out of intense complexities, intense simplicities emerge.” - Winston Churchill

    Monday, 20 July 2015

    20-Jul-2015 CSE Trade Summary

    Quote for the day

    "The man who does more than he is paid for will soon be paid for more than he does." - Napoleon Hill

    Sunday, 19 July 2015

    Success is more than what you can see


    Trade Like a Boy Scout

    By Steve Burns

    The Boy Scouts have been instrumental in the personal growth of millions of young people in the United States. One of the reasons for their success is that they stand for something, and they faithfully practice what they believe. We all know “Always be prepared”, and that’s surely good advice. But they also follow something they call the Boy Scout Law. 

    This law focuses on always doing your best, for yourself and others. This got me thinking that there is a lot we can learn from the Boy Scout Law, in all walks of life. Even trading.

    A Scout is:

    • Trustworthy
    • Loyal
    • Helpful
    • Friendly
    • Courteous
    • Kind
    • Obedient
    • Cheerful
    • Thrifty
    • Brave
    • Clean
    • Reverent

    Let’s translate this to trading:

    A Trader is:
    • Trustworthy - Be honest with yourself and those closest to you. Trading is difficult, and you will need all the support you can get.
    • Loyal - There may be no better trait than loyalty. Surround yourself with those that you respect and who respect you, and defend them to the end.
    • Helpful - No matter where you are on your trading journey, there is someone else that knows less than you. Find someone to help with an encouraging word or two.
    • Friendly, courteous, and kind - We all have some fun poking at each other here and there, but keep in mind that the markets can hurt, both financially and emotionally. Be respectful of the feelings of others.
    • Obedient - Nothing will set you apart from other traders faster than being obedient to your trading plan. Develop a strategy and stick with it, no matter what.
    • Cheerful - I think that the more good-natured you are, the more people will be attracted to you, and the more opportunities you will have. There is no place for gloom and doom.
    • Thrifty - Being careful with your capital should be of paramount importance to you. Your goal is to have bigger wins and smaller losses.
    • Brave - Let’s face it, there are times when you have to go against your natural instincts and be brave. You need to be brave enough to get in, and brave enough to get out.
    • Clean - The Boy Scouts are probably talking about scrubbing behind your ears and campsites, but I think that all traders should endeavour to play by the rules and keep it clean.
    • Reverent - Having reverence for something is “feeling or showing deep and solemn respect”. We all should have respect for the markets, for the small part we play, and those brave enough to trade them.
    There is much to be learned from organizations like the Boy Scouts, but traders can focus on these aspects to give themselves an edge, and increase their chances of having a successful trading career.

    Quote for the day

    "Let's go invent tomorrow rather than worrying about what happened yesterday." - Steve Jobs

    Saturday, 18 July 2015

    “Don’t marry hot stocks, just date them.”

    By Steve

    7 Ways A Hot Stock is Like A Hot Girlfriend.

    1. Hot stocks are only good when they are in up trends, when the party is over you have to break up with them.

    2. Hot stocks are great to trade in and out of but you don’t want to turn them into a life long investment.

    3. A good stock might look great on the outside with it’s price action but it may not have the best fundamentals for getting serious with.

    4. Hot stocks are great for the short term but for the long term you want a solid investment.

    5. Be careful with hot stocks they may look great on the outside but they can break your heart at any moment.

    6. A hot stock can be a lot of fun for awhile but they can be a lot of drama when no one wants them anymore.

    7. As long as a hot girlfriend is very popular she will be happy but when no one wants to date her she goes into a downward spiral. This applies to hot stocks as well.

    Quote for the day

    "Anyone who stops learning is old, whether at twenty or eighty. Anyone who keeps learning stays young. The greatest thing in life is to keep your mind young." - Henry Ford

    Friday, 17 July 2015

    17-Jul-2015 CSE Trade Summary

    Quote for the day

    “The market has no respect for your station in life or for how smart an investor you have been until now. In fact, the market in this incarnation most prefers to humiliate those who remain smug or who appear to be telling it what to do and when to do it.” - Tom Petruno

    Thursday, 16 July 2015

    16-Jul-2015 CSE Trade Summary

    Quote for the day

    “Should you find yourself in a chronically-leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.” -  Warren Buffett

    Wednesday, 15 July 2015

    15-Jul-2015 CSE Trade Summary

    Quote for the day

    “A lot of people would rather understand the market than make money.” -  Ed Seykota

    Tuesday, 14 July 2015

    14-Jul-2015 CSE Trade Summary

    Quote for the day

    “Learn principles. Facts will then fall into their relations and connections.” - Dickson G. Watts

    Monday, 13 July 2015

    13-Jul-2015 CSE Trade Summary

    Quote for the day

    "The only sound reason for buying a stock is that it is rising in price. If that is happening, no other reason is required. If that is not happening, no other reason is worth considering." - Nicolas Darvas

    Sunday, 12 July 2015

    "Lesson for Traders, love, relationships, and basically life..! (Learn to cut your losses) "

    Life Rules

    1. Karma exists. It may not be instant like in that John Lennon song, but it happens. May take a long time, might not be easily seen, may not be visible to anybody but you, the one who was scathed, but it’s real.

    2. Niceness triumphs. Although no one can be nice all the time. And sometimes you have to push back. But if you’ve got the option, be nice, people appreciate it.

    3. Be yourself. We’re all individuals. That’s what attracts others to us, our uniqueness. Don’t try to imitate someone else, focus on your strengths and heighten them. Everyone can’t do everything. Don’t try to fit your square peg in a round hole. But your trapezoid will appeal, if you just let it shine.

    4. You can’t please everybody. It’s a phony concept that flames out. Be thankful you’ve got your group, your friends, your family, your fans. There are those who would appreciate you whom you’ve never met, focus on meeting them, not those who don’t care.

    5. Education is everything. And it doesn’t have to happen in school. But at this late date we can understand why reading, writing and ‘rithmetic are so important. Yes, in the internet era, reading and writing are everything (typing too!) As for math… You can’t do a deal without knowing the numbers. And everybody wants to do a deal.

    6. Learning is lifelong. You keep gaining insight and then you die. Life is a puzzle, one in which you’re constantly delivered new pieces. And you can’t figure some stuff out until you get this new information. Which is why age equals wisdom and the young may have their youth, but the old have all the happiness.

    7. Possessions mean less as you age. You can’t take them with you. Furthermore, we’re evolving into a no possessions era. One in which you can rent a ride and you don’t even have to own a car. Experiences are everything.

    8. No one has the answers when it comes to love. There’s no perfect partner, if you’re looking for one you’re doomed. The key is to play. Relationships are the salad dressing of life, without them it tastes very bland.

    9. Do the right thing. Not only will it make a difference, you’ll feel better about yourself.

    10. Time starts accelerating sometime in your late thirties or forties. If you’re not paying attention, if you’re not steering, chances are you’re not gonna get where you want to go.

    11. Inspiration comes from displacement. Get out of your comfort zone, the rewards are legion.