Drama Of The Markets. What Is This?
The number of the psychological theories explaining behavior of the person seems infinite. As though each psychologist wishes to offer the own theory and to convince other part of psychological community that is new prospect. Some psychologists have expanded the psychological theory on studying of the markets and have presented the theories in books on investment psychology.
But doctor Karl E. Scheibe, the professor of psychology in university Wesleyan, has made on the contrary – he used behavior of the investor in the share market to support the general theory about human motives. In the book “An everyday life drama” doctor Scheibe proves that the everyday life is overflowed by numerous dramas, which are played on many times. Being people, we search for a drama. According to doctor Scheibe “the drama releases people of boredom and similarity of repetitions”. Throughout the book doctor Scheibe describes some examples where people in the everyday life search for a drama, as antidote with boredom. In the chapter “Fear and greed”, he shows how people find a drama in the share market.
As you, possibly, already heard many times, the market is moved with fear and greed. Doctor Schiebe has tried to expand this postulate. He pays attention to asymmetry between fear and greed: the loss is more terrible, than pleasure from profit. Researches of Tversky and Kahneman on a risk aversion ensure the best scientific illustration of this principle. For example, when it is offered to make a choice, people prefer confident profit of 100$ to probability of 50 % to win 200$. People do not love risk and always choose confident profit. Consequences of behavior of the investor at a risk aversion consist that usually losses exceed profits. That is the majority of people will search, first of all, for possibility to avoid unpleasant sensations from possible loss and, thus, prematurely to liquidate items. And because of unreasonable greed they will repeatedly continue to invest money in the market. This cycle of premature sale and repeated input in the market means that the majority of investors will lose more often, than to profit. Why do the majority of investors continue to invest at accruing losses? It is not just greed as the motive of greed is weaker, than aspiration to avoid risk. If it is not greed, what is that? They need drama. They create drama interaction. They are excited from a profit, but are afraid of losses, and sell to protect what have achieved. But then the boredom comes again. The desire to make the big profit excites them, and they enter on the market again. So, the drama repeats many times.
Doctor Schiebe has noticed that drama search is not limited to fans, and applies also on professional traders. All professionals know that the great majority of shares are not changed by indexes. They would win financially, having purchased a representative set of securities and only having kept them for a year. They could go on fishing, relax on a beach or travel, at all without concerning investments. In this case their funds, at least, would correspond to year-on-year growth of an index, which practically always fulfils better, than the majority of managers of funds. So, why don’t they behave like this? It is requirement for a drama. Not too interestingly simply to leave investments alone. They have chosen a fascinating trade of the manager of fund, and continue to go work every day, trying to add a drama in the life, even thus that the majority would achieve bigger success if have left funds alone.
Before you make up your mind to make a forex investment or start forex trading yourself, better find a good forex book and read more about forex market – this will save you from lots of troubles and traps.