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Market Psychology & Behavioural Finance

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Market Psychology & Behavioural Finance

Capitulation

The point in a decline at which remaining holders abandon their positions, typically on heavy volume.

Test: a sharp price fall on unusually high volume, accompanied by broad negative sentiment and heavy redemptions qualitative Market Psychology & Behavioural Finance

Confirmation Bias

The tendency to seek and favour information that supports an existing view while discounting information that contradicts it.

Test: evidence supporting the held position is sought and accepted readily, while contrary evidence is scrutinised or dismissed qualitative Market Psychology & Behavioural Finance

Contrarian Investing

Deliberately taking positions against prevailing sentiment, on the argument that consensus is already in the price.

Test: the position is taken because sentiment is one-sided, with an independent basis for believing the consensus is wrong qualitative