does history repeat itself? (Investment psychology)

By M.Farouk Radwan, MSc.

what are anchors?

When two events become associated together in your mind in such a way that the occurrence of one of them reminds you of the other then they are said to be anchored.

For example if you got used to drink tea after eating then as soon as you finish eating you will remember your tea and feel like wanting it.

The same goes when you listen to a song that reminds you of an event that took place earlier in your life.

what does this has to do with investments?

Suppose that a stock market crash happened at a certain day or at a certain month. if this crash was severe enough people might associate that crash with that day or month.

For example people could fear February and even sell at it because the stock market previously crashed at February. When people form such anchors they usually behave according to them.

For example people who got used to see the stock market rising in January might buy more stocks at the end of December just because they expect the market to go up during January.

how can I make use of this?

First of all you should find how many retail investors are in the market you are in and then try to ask some of them if any month or day is associated with a stock market crash.

Upon finding that timing you could then exit your position just before it and when everyone sells because of their anchor you can then buy your stocks once again with a cheaper price.

The most important thing is not falling a prey to anchors yourself. Technical analysis traders say that history repeats itself but this does not always happen. If the stock market crashed at a certain time then this does not mean that it will crash again at the same time next year.

Trading vs long term investors

If you asked 10 people about their strategy you will find one investor among each 10 people. 9 out of each 10 people become traders then end up losing money after few month, weeks or even days.

The only person who keeps making money from the stock market is the investor and not the trader. If you want to make money from the stock market then you must shift your mindset to become more of an investor than a trader.

Traders might make some profit on the short or even the medium term but sooner or later they end up with losses.

The best way to make money from the stock market is to buy a company instead of buying a stock. Once you believe in a certain company you can buy its stocks and make money as it keeps growing.

Farouk is not only holding several degrees in psychology but he is also an MBA holder, a stock market investor and an entrepreneur. The information you are reading now can dramatically increase your chance of increasing your wealth and becoming reach. If you have any doubts regarding these statements then read what other visitors say about 2knowmyself.com.The book How I did it was written by Farouk and it explains how he managed to make a website that generates thousands of dollars/month in less than 2 years without paying a penny.

did that help?

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