GOOD EVENINGTOPIC: BEHAVIORAL TRADING ANALYSIS

BEHAVIORAL FINANCEBehavioral Finance is the study of

understandingWhy people buy or sell stocks Without doing fundamental analysis

& Behave irrationally in investment

decisions.

BEHAVIORAL FACTOR THAT AFFECT INVESTMENT DECISIONS

ANCHORING When investors

remain anchored to their previous view of the company.

Positive information or potential profitability are under-reacted.

OVERCONFIDENCE Overconfident

regarding investors ability and knowledge.

Underestimate forecasts.

Overestimate leads to risky investments.

LOSS AVERSION Investors become

risk seeker with respect of loss.

Become risk averse to enjoy gains.

They want to take more risk to avoid loss than to realize gain.

OVER AND UNDER-REACTION Disproportionate

reaction to news, both good & bad news.

Become more optimistic when market goes up.

Become more pessimistic when market goes down.

HERD BEHAVIOR Tendency of individual to

following the actions of a large group.

1st reason, social pressure of conformity.

2nd reason, common rational that a large group is unlikely to be wrong.

STOP LOSS

• Stop your losses• Control investment risk • Stop from More than your pocket allows

Key Note: COMMITMENT

TWO TYPES OF STOP LOSS

Protective Stop Loss:Conservative or Tight Dull market & Risky StockProtects from downside risk

Progressive Stop Loss:Used in stocks with

profitable moveBull market & Potential

StockProtects from upside risk

WHY WE SHOULD USE STOP LOSS?

• Protects from false move• Prevent small losses becoming larger• Can save from unexpected or sudden move in price• Avoid emotional influences• Helps to stay on track

LIMITATIONSIt can cut your profit marginCan give you false signalShort term trading tools

HOW TO SET STOP LOSS:

• No perfect and satisfactory rules• Depends on judgments, Stock price and its habits• Should it be more tight or little wide?• Should I use trailing stop loss?

FACTORS TO BE CONSIDERED BEFORE USING STOP LOSS

• Determine the amount of loss that you can afford.• Always consider market CONDITION• Target liquid shares• Always give at least 5% space to avoid market abuse.

CONCLUDING NOTES

• It works like an Insurance policy• It doesn’t guarantee of making money• If you fail to make intelligent investment decision, you’ll lose

money but in a slower rate.• Always stick to your commitment in downside risk