Understanding the role of emotions in investors' financial decisions can greatly assist in avoiding mistakes in stock market trading.

It is understandable that investors in the stock market, driven by financial motives, have strong emotions about the performance of stocks, as this not only concerns the risk to their capital but also the impact of money on their lives and property. Their loved ones are also affected.

However, if left unchecked, emotions can drive investors to take irrational actions or make hasty decisions, which can significantly adversely affect the performance of their investment portfolios and overall investment experience. This can turn into a vicious cycle of actions and reactions.

Here are nine investment emotions that are crucial for identifying, acknowledging, and scrutinizing to interpret their potential impact on the decisions that stock market investors may face at one point or another, especially for novice investors:

1. Unrealistic Expectations

Everyone has heard stories of investors who have made a fortune in the stock market, and some may want to replicate these outcomes with their own investments. However, the reality may be different. Dalbar conducted a study in 2001 and repeated it in 2015, showing that the average investor achieved a return of 5.32% over 17 years, while the S&P 500 reached an average annual return of 16.29%. Why can't the average investor achieve returns based on overall market performance? Part of the answer may lie in the psychology of investors, especially if they lock in losses and do not give their stock options a chance to recover and realize their growth potential.

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2. Limited Patience

Investors often have limited patience when it comes to seeing returns on their investments. They may expect immediate results and become impatient when the market does not deliver quick gains. This impatience can lead to premature selling of stocks or frequent trading, which can result in missed opportunities for long-term growth and higher transaction costs. It is important for investors to understand that the stock market is a long-term investment vehicle and that patience is key to achieving successful outcomes.Long-term investing is more likely to yield returns than short-term speculation. When the market declines, or when certain stocks do not perform as well as leading stocks in an upward trend, these stocks are often met with skepticism and may even be considered candidates for selling, even at a loss. As prices fall further, this trend intensifies, prompting some investors to sell at very low prices and, in the process, lose a significant portion of their investment capital. In many cases, if they had simply waited long enough, they would have been able to break even or even sell the stocks for a profit. Unless investors are in urgent need of cash or believe that the stock will not rebound within a reasonable time frame, the wise move is to set aside emotions and weather the downturn.

3. Loss Aversion

For many investors, the feeling of a loss is much worse than the gains they make in the stock market, so they may go to great lengths to avoid such losses. Loss aversion stems from the desire to protect oneself from future losses, which can lead them to sell stocks at low prices and incur smaller losses now rather than risk waiting and losing more money later. The danger of this approach is that investors can only lock in their losses or gains when they sell their positions; thus, by selling at low prices, they give up the opportunity for the stocks to rebound, especially when the stocks are temporarily at a low point but have significant growth potential.

4. Price Anchoring

Price anchoring is another important stock market sentiment, referring to the notion that a stock's value is the value displayed when an investor first starts tracking the stock. Then, a decrease in price is seen as an opportunity to buy low, and an increase in price is seen as the stock possibly becoming too expensive. This perspective extends to the analysis of stock trends, such as assuming past performance will predict future performance without considering factors like supply and demand, upcoming competition, company earnings, broader market trends, and the latest innovations.

5. Peer Pressure

Even if one cannot come to the same conclusion on their own, there is a tendency to conform to the opinions of the majority. However, when friends, neighbors, or family members talk about how much money they have made from their investments, it is human nature to want to jump on the bandwagon. After all, if they can profit from these stocks, so should you. Financial commentators on television and social media are no exception; their views can help shape the thoughts of others. But if you decide to buy stocks based on the results others have already achieved, you are likely not to get the same results due to different circumstances (such as the timing of purchasing the stocks and the specific behaviors of the buyers). The market during that period.

6. Fear of Missing Out

One of the most fundamental rules of investing is to buy low and sell high. This rule makes sense at the most basic level, so why do so many investors lose money in the stock market? One reason is related to people's fear of missing out on stocks that have already shown significant gains, even before these stocks may be near their resistance limits and have not yet peaked. If the expectation that such stocks will continue to grow cannot be realized, their confidence in them wanes, leading investors to sell their positions to buy the latest rising stocks before the prices become too high.7. Investment Regret

The regret of buyers can sometimes play a significant role in the psychology of the stock market. This typically comes into play when investors realize they have made poor investment decisions. Given that no investor can accurately and consistently predict market trends, all investors will suffer losses due to wrong decisions at some point. Whether you regret jumping off too late, poor forecasting, or other factors, this issue tends to recur and lead to more regret. The buyer's remorse may lead investors to cut their losses, even if they end up losing in the process.

8. Financial Pressure

Those who are falling behind in their efforts to achieve financial goals, such as those who wish to retire while maintaining a certain lifestyle, and those carrying heavy debts, may feel particularly pressured to achieve positive investment returns. This can be especially true for those who have already suffered losses from other investments. This may prevent investors from conducting financial analysis with the necessary peace of mind, as their decisions may be significantly influenced by a strong demand for positive outcomes.

9. Tendency to Overreact

Optimism and pessimism can also affect an investor's psychology. For instance, when investors hear good news about a company, they may overreact based on the belief that the news will have a positive impact on the business. Similarly, negative news can lead to extreme pessimism, which often causes investors to overreact in the other direction, leading to the sale of their positions at a loss. The result is significant short-term price fluctuations, which may not have a direct relationship with the actual growth potential of the given stock.

Financial discipline is crucial in managing the process of investment emotions. Successful investors understand the psychology of the stock market and train themselves to recognize their emotional impulses and respond with a keen eye. The decision to buy or sell stocks or to hold them should be systematically informed by market analysis. Savvy investors will take the time to review their potential trades to ensure consistency with their overall investment strategy.