Continuing with this series, sometimes I rely on luck to be right or rely on instinct to achieve my goals, after several consecutive times like that, I tend to become confident in my instincts. Just like in investing, many times I think "I should" Short/Long and I make a profit. Gradually, I become too confident in my judgment ability. And the next psychological effect in this series is the "Overconfidence Bias" - and how this mentality will affect us.
This mentality often occurs with newcomers, and sometimes even experienced individuals can easily fall into it if they continuously win for a period. They become confident in their knowledge and judgment. This can lead to easily increasing volume, accompanied by risk, and can lose a lot of money if it goes against their analysis and predictions.
Some manifestations of overconfidence effect:
Confident investors can "catch the peak" / "hit the bottom" well, thereby earning profits, but it only works when the market is favorable and follows resistance and support rules. They may make high-risk decisions in volatile markets.
Not learning from mistakes: When a person "wins" in a game too often, when they "lose", they tend to blame the "bad" circumstances, "fluctuations",... This makes them subjective and fail to reconsider their strategy.
Confident in predicting trends: Many investors believe they can predict market trends, but in reality, the financial market is always influenced by many complex and unpredictable factors.
===> Confidence easily increases volume, makes small profits but when increasing volume leads to losses, increases risk ratio, loses clear perspective, and misses good investment opportunities.
What do we need to do to control this confidence?
-> Confidence is good but we need to know where we stand; the best way is to be humble and always self-reflect and evaluate ourselves. Not only in investing but in all aspects of life.
-> Set discipline for yourself and adhere to it, even if confident, one must still follow discipline.
-> Continuously learn how to control emotions, if there are mistakes or failures, always look for the reasons within.
