- Dec 20, 2016
- 0 comments
- by Amy Serin
Let’s face it, we all can be a little impulsive at times. Either we’re sneaking a third donut, buying designer jeans we don’t need, or saying things we don’t mean in the heat of the moment. Sometimes a little impulsivity has few consequences but when it comes to important decisions, such as financial planning or market investing, impulsivity can be disastrous. Remember Dory from Finding Nemo? Impulsive, stressed, scatterbrained and with hardly any short term memory. We all have a little Dory inside our brain when we get stressed out. However, we can’t have this part of our brain ruling our decision making when the stakes are high. During these times, the more focused, calm, and engaged we are can make or break the outcome.
Too much anxiety or emotional reactivity can allow your inner Dory to run amok. Research shows stock market picks from investors who experience more intense emotional reactions to gain and loss yielded lower returns on than did those with more attenuated emotional responses (Wang, Zhang, Wang & Liu, 2014). Traders who have higher amounts of negative emotional reactions such as anxiety, stress, hostility, impulsivity, anger, irrationality and frustration are also more vulnerable to loss of stocks (Rzeszutek, Czerwonka, & Walczak, 2015; Wang et al., 2014). This makes sense because when we become stressed, our thinking brain is weakened and we react with Dory like impulsivity rather than responding logically or rationally. When emotion overwhelms reason, this is not good for investors hoping to succeed in the stock market (Zweig, 2007). Why is this the case? Financial losses are processed in the same area of the brain that respond to mortal danger, or your F3 response (Zweig, 2007). Novice investors tend to dump stock more than experienced investors as they are much more influenced and emotionally reactive to stock market behavior so as not to lose money (Bosworth, 2013). Whether you are a novice or experienced investor, we have a solution to keep your Dory reactivity at bay. Use BLAST technology during trading and stay logical and focused instead of impulsive and reactive and you may just find trading to be a more enjoyable experience and your return rate may improve as well.