Insights

Psychological Traps Investors Should Avoid

28 March 2019  |  EDUCATION

We all have inherent biases, based on how we were brought up and what influences we were exposed to. These internal thought patterns sometimes affect our financial actions. They can play a big role as we decide how to trade shares overseas. But before we can overcome these inner cash compasses, we have to identify them.

Anchoring is one. We’re often told to go with the first thing that pops into our minds, whether it’s the answer to a multiple choice test question or a trivial decision about which dessert to pick. It implies your first thought is pure instinct, a ‘blink’ decision (popularised by Malcom Gladwell), derived from subconscious data. Second-guessing yourself supposedly dilutes the magic.

Unfortunately, stubbornly clinging to your initial choice can work against you when evidence proves your original decision wrong. The same goes for ‘sunk costs’ bias, where you’ve lost so much already and you can’t admit you’re wrong. You don’t want those losses to be in vain. In both instances, your share broker for international trading may offer new insights.

Get the right information

At Monex, for example, we’re deeply research-oriented, so we consistently offer new data to help with your investment journey. In such cases, investors have to allow themselves to change their minds, release their anchor, let go of their sunken costs, and drift into safer waters. Our data-driven investment strategy can also protect you from the third trap – confirmation bias.

You’re likely to trade with like-minded people, meaning you’ll all make the same communal mistakes. Monex dilutes this financial susceptibility by giving you facts and relevant contributing factors. We give you solid reasons to either stick with or shift your current trading route. The blindness trap applies here as well, in which you willfully disregard any market problems.

It’s a natural human tendency – ignorance is bliss – because what you don’t know can’t hurt you. It can still cause you to lose money though. That is why our dedicated relationship managers offer one-on-one coaching in multiple languages. They’ll open your eyes and walk you through any investment step, from an initial investment to smack in the middle of a thousand-dollar trade.

Knowledge pushes profit

As it turns out, lots of psychological biases and investment traps can be defeated by accurate information. Yet humans find it easier to ‘trust what they know’ instead of accessing objective resources. This is a direct driver of the relativity trap, which has us comparing ourselves with fellow investors instead of impartially reviewing market conditions.

Our research is continuous, so while our records will tabulate irrational exuberance traps (over-confidence from prior successes), our continued market watches will detect changes and notify you when it’s time to shift track. This protects you from inevitable market correction, which is the eventual response of mass irrational exuberance.

Then there’s the gambler’s dilemma – the pseudo-certainty trap that makes investors take bigger risks to ‘win back their losses.’ Conversely, some keep playing it safe because they’re ‘doing okay’ only to miss out on potential gains. Finally, the superiority traps deter investors who see themselves as infallible experts.

Fortunately, Monex traders offer validated and detailed market data, so you can take safer risks that maximise your portfolio.


To learn more about evading psychological investment traps, or to open your own trading account, fill out our contact form and we’ll get right back to you.

Read Also:

Top three things to consider when investing in international markets

5 Tips to Become a Successful International Equities Shares Trader

Things you need to know prior to investing offshore


Risk Disclaimer: The information above is of general nature only and does not take into account your objectives, financial situation or investment needs. Prior to you make an investment decision, please make sure you carefully read and fully understand our Financial Services Guide, Terms and Conditions, Privacy Policy and other relevant documents that you can obtain from this website. Monex Securities Australia Pty Ltd (AFSL No. 363972; ABN 84 142 210 179) is the Financial services provider. Financial products trading carries risks and may not be suitable for all investors. You are strongly recommended to seek independent financial advice before making any investment decisions.

,

Related Articles

Investing in international shares can seem exciting, but like any financial undertaking, you have to do your groundwork to ensure a sound investment strategy. Fortunately, information about co..

At the start of the corporate reporting season in the US, this July, Boston Scientific Corporation’s (NYSE: BSX) shares were trading mostly in the region of US$42 to US$43.In a little over six month..

Register For Demo Account

Find out how easy it is to invest in international markets and diversify your portfolio.

Zero Brokerage Offer