Wait and see in the upward trend, buy the bottom in the downward trend
During an upward trend, the stock price continues to reach new highs, and the time and space for correction are limited. Investors are easily anchored by the early low price, thinking that the stock price is too expensive and miss investment opportunities. When the stock price falls sharply and returns to a historical low, or when the trend starts, investors are easily anchored by the historical high, thinking that the stock price is cheap and buying the bottom.
The following is the author's journey on the new road:
In the 14-week upward trend of China Power Construction, the time and magnitude of the correction were very small. Being anchored by the bottom, it was difficult for me to find a suitable entry opportunity. Because the stock price is always higher than the anchor point, the opportunity to buy at a low price is missed and there is no reason to buy at a higher price. While I was watching, the stock price rose from 4.06 at ① to 9.65 yuan at 10, an increase of 137.68%.
At ⑪, the stock price fell back to 6.58. Based on ①, the correction range reached 60.46%. Based on ⑦, the correction range reached 90.13%. Under the joint influence of ①, ⑦ and ⑩, choose to enter the market here to buy the bottom.
I think the 4.87 high after breaking through ③, the 5.85 high after breaking through ⑤, the high 6.21 after breaking through ⑦, and the low 6.58 after breaking through ⑪, which is why the anchor points are different.
How floating profits turn into actual losses
It is still a painful lesson for the author. Hey, why do I have so many lessons to reflect on...
I bought it at ① at a cost of 8 yuan. After three consecutive days of rising prices starting from ②, I was full of confidence and thought it was a very beautiful operation. I looked forward to doubling the profit on this stock.
It opened 4.35% higher at ④ and reached a maximum of 6.61%. When investors were fully expecting the daily limit to be closed, the stock price fell rapidly. With the idea of taking another look, what they finally waited for was that the stock price was locked at the lower limit.
It opened at ⑤ and soared to 5.89%, but the stock price fell below 10 yuan before closing. Afterwards, I also reflected that even if I sold at the closing price of ⑤, I still made a profit of 21.13%, why didn’t I have a chance to sell? This is the wonder of the anchoring effect.
From expecting a gain of more than 100%, we saw 53.25% at ④, closing at 29.38%, and only 21.13% the next day. If you invest 1 million, the profit will change from 532,500 to 293,800, leaving 211,300. Can you feel the reluctance in my heart?
Because there are still profits, I may treat profits and principal differently psychologically. I want to continue to use profits to gain greater profits, so I decided to continue to take a look.
Next, the stock price continued to shrink and fall, and I chose to treat it passively. Finally at ⑥, the stock price fell sharply again near my cost, because the anchoring effect of the cost price came into play again. In order to avoid profits turning into losses, I chose to sell here.
If you don't sell at ⑥, and the decline stops at ⑦, this low point is regarded as a new anchor, and if you continue to break through and fall at ⑧, most people will choose to sell at a loss. If you haven't sold yet, you are very likely to be deeply trapped in the downward trend.
The psychological basis of double bottoms
When investors buy, the stock price directly enters a downward trend. Investors who are anchored by the cost price usually treat it negatively in order to avoid cashing out losses and firmly hold on to the continued decline, resulting in deep lock-in.
After a long enough downward trend, the stock price rose significantly to form the first bottom. The trapped investors regained hope after being flat for a long time, and the cost anchor was unknowingly moved by this newly formed bottom. Instead, previous losses are converted into sunk costs by investors.
When the stock price falls back to near this low point again, or even breaks through this low point, investors choose to sell out of fear of experiencing the pain of losses again.
However, after a short period of decline, the stock price rebounds quickly, usually higher than the price investors sold it at, forming a second bottom.
This stop-loss selling price will become a new anchor point. Until the stock price bottoms out, investors will be affected by this anchor point and have no chance to buy again in the upward trend in time and space scales.
In short, once an investor is anchored, it is like a fish that has bitten the hook and it is difficult to escape.