This Is Your Brain On Stock Market - Part 2

<< Read More: This Is Your Brain On Stock Market - Part 1 

Our brains are messed up. Daniel Kahneman, the Nobel Prize winning economist, calls the ways we are messed up “cognitive biases.”

Our cognitive biases make us sell stocks whenever everyone else is selling. Cause us to buy stocks when everyone else is buying. This is called “herd behavior.”

Another cognitive bias is called “loss aversion.” We’d rather make a bad decision than lose money. So we sell too quickly.

Cognitive biases almost always force us to make bad decisions. This is why markets and stocks sometimes go up too high. Much higher than they should.

And this is why markets go down much lower than they should.

But this creates MASSIVE opportunity if you have an unfair advantage.

Kahneman says, “It’s impossible to act rationally. It’s impossible to get rid of the cognitive biases.” Impossible!

People are irrational all the time. If Microsoft goes down five days in a row, people sometimes think, “That’s it! Microsoft is dead! Time to sell.” And then it keeps going even lower because of the new crazy selling.

What was the news? Maybe Microsoft missed earnings by a penny. Something trivial. But people go crazy.

I go crazy.

So I did what I always do. I wrote software. I took the emotion out of my trading.

I knew all the cognitive biases. I had studied them. The stock market is like the collective psychology of the entire planet.

If individuals can make irrational decisions because of these biases, then so can the entire market. So can you. So can I.

My software helped me find 100s of patterns where I was able to prove people were acting irrationally.

If you invest in the opposite direction of millions of crazy people, you make a ton of money.

I didn’t know anyone else doing this at the time. There were a few secretive hedge funds doing it. And then I did it.

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Bindi Dhaduk 1 month ago Member's comment

Love it!