Psychology-Stock Markets

A good, oh wait! I’m into blog writing, which is perceived to be spicier than a formal presentation. So I would rather try to take your few minutes in adding flavor’s to your mind instead of making recipe.

“When great minds work in harmony, music happens.

When great people work in disharmony, trade happens.”

Sounds familiar? It is a phrase written in every Nook and corner of our college, of course with a little modification from my side. Before getting on to the above phrase, let me first take you to the world of derivatives, equities, stocks, trade, short, long, put, call, swap, bond or to put it up, “stock markets”. It is a place where something which is supposed to be something based on the qualities of that something, is hyped or devalued to be something else, by someone (commonly called as traders/investors), is someway exchanged, where one party loses and the other party gains. Sounds confusing?

Let us take a scenario which happened in the recent past, where Adani enterprises, which was in the range of 600’s crashed to the levels of 100 out of which 80% of the crash  was on a single day where it announced the demerger of its firms. Though there is negative news to justify the crash to a certain extent, an 80% crash is purely because of the people who did it just to make abnormal gains by trading. Where the one who went short gained and the other person lost his wealth.

This is something what I was said initially when I was doing my internship with a stock broker, when asked about stock markets. There I found it evidential that the psychology behind trading is something which drives the stock market, which made me feel analyze more on the former part rather than the latter “stock markets”, to be an influential person in the market.

On a general psychological note, Emotions are those which often impact people in terms of decision making, which is the foremost job in stock markets. Whatever is the emotion it directly impacts the market. Understanding the stock is easy but understanding the emotions of the people is a little difficult task. These emotions are the ones which is going to make you or break you in share markets.

A simple emotion of say, being optimistic, can lead you buy stocks even when the market isn’t favorable because we basically presume that everything will be good in the future. Sometimes it works out, sometimes it won’t. But overcoming those if it doesn’t work out is also a resultant of your emotions wherein depression, capitulation, hopes and relief makes it up.

Earlier I would have stated a quote which might make you think in what way it is related to this? To answer that, we all know that emotions are not always the same for everyone. What I feel as a good opportunity might be a bad disaster for someone else. If it works in harmony stock market would never function. What if all people are optimistic? Probably everyone would end up buying the stocks? But from whom? Someone should sell it, shouldn’t they? But if they have a positive outlook they are never going to do that, rather they also would try to buy more and accumulate the stocks which might make market in a standstill. Thus mixed opposite emotions of people like greed, fear, faith, despondency, anxiety, thrill, excitement are those psychological aspects which are in the stock market which makes it a potential platform for action.

This blog written by Santhanam Narasimhan, MBA-FA 2015-2017

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