Following our mention of sentiment “trigger points” last week, we received several questions on how SentiTrade identifies momentum in market psychology. Normally, trigger points refer to psychological price levels that will “trigger” certain behaviors. For example, if prices of gasoline suddenly rose to €2 per liter, it is reasonable to assume that driving patterns will change. The cost of driving traditional cars, may furthermore “trigger” an increase in sales of hybrid- and electric cars. Read more

Tags asset allocation - bull bear psychology - computer linguistics - confirmation bias - corrective waves - derivatives trading - investment strategy - market prediction - market psychology - market sentiment - overreaction hypothesis - risk on risk off - sentiment trigger point

Behavioral finance starts with the acknowledgment that investors are less rational than we would like to admit. Specifically, this theory states that conventional investment concepts ignore how people really behave… Let’s have a look at the main principles of behavioral finance: Overreaction: The stock market overreaction hypothesis (ORH) holds that if stock prices systematically rise and fall as a consequence of excessive investor optimism or pessimism, one can predict price reversals based on past performance. Read more

Tags behavioral finance - excessive investor optimism - excessive investor pessimism - Fear of Regret - Investment choices - market reversal - OHR - overreaction hypothesis