Why Do Financial Markets Go Against Human Nature?

The essence of financial markets lies in competition, and the key to competition is reverse thinking. When you stand on the side of the truth but contradict the mainstream market sentiment, you are often met with skepticism or even abuse. Behind this phenomenon lies the weakness of human nature—herd mentality and emotion-driven behavior.

Why do markets go against human nature?

1. Herd mentality at play:

Most people tend to follow market trends, fearing to stand alone on the minority side. Even if the truth is clear, it may be deemed wrong simply because it contradicts the mainstream perception.

2. Emotion-driven trading:

Fear and greed are the two dominant emotions in the market, and many investors can easily be swayed by short-term fluctuations and public sentiment, neglecting long-term trends or facts.

3. Conflicting interests:

The market is a zero-sum game, with differing interests between institutions and retail investors, as well as between large and small players. Markets go against human nature to ensure that the majority incur losses while a minority profits.

How to win in a counterintuitive market?

1. Independent thinking:

Do not blindly follow market sentiment; use data and logic to validate your judgments.

2. Maintain patience:

Truth takes time to be proven; stick to the correct direction and do not waver easily, even if faced with short-term setbacks.

3. Counter-cyclical operations:

Be greedy when others are fearful and fearful when others are greedy. Have the courage to make calm decisions when market sentiment is extreme.

Summary:

The game of financial markets is to go against human nature; only those who see through human weaknesses and adhere to correct logic can remain undefeated in the competition. Remember: the market can be irrational for a short time, but time will ultimately prove everything.