There is a truism on Wall Street that only two emotions—fear and greed—can move the market. Even if this is oversimplified, it frequently rings true. But giving in to these feelings can also have serious negative effects on investor portfolios, the stability of the stock market, and even the overall health of the economy. Understanding market psychology is a subject that has generated a sizable body of academic literature known as behavioural finance.
Letting your emotions control your financial decisions can result in foolish choices that could end up costing you a lot of money.
Whether a trend is bullish or bearish at the time, it is typically advisable to ignore it and adhere to a long-term strategy based on strong fundamentals.
When fear and greed rule the market, it’s also crucial to know how risk-sensitive you are and adjust your asset allocations accordingly.
