A variety of factors beyond fundamental or technical analysis shade our decisions.
The two emotions that receive the most attention are fear and greed.
Fear panics investors into selling a just the wrong time and greed urges us to buy at just the wrong time.
However, there are other factors stock investors should consider.
One of the most influential non-analytical forces convinces investors that whichever direction the market is moving at the moment is the direction it will continue to move.
If the market takes a swing up for several days, investors often assume it will continue in that direction despite historical and analytical evidence to the contrary.
For example, after the market has marked a significant upswing, it is probable that investors will take profits and their selling will halt and reverse the advance.
This is not to say the market won’t resume its upward swing after a pullback, but there is no rule that says this must happen.
The reverse is true when the market slides significantly. Some investors will assume that is the market will continue moving down.
However, it is often the case that prices will drop to a point where stocks become a bargain and investors step in to grab some values.
Their buying will usually reverse the trend, at least temporarily.
What is happening is a factor called time relevance, which says recent events are more important than historical ones.
There is some truth to the idea of recent events having more relevance that past actions, however don’t let your short-term memory override your logic.
The point for investors is don’t use the direction of the market as a sign it will continue moving in that direction indefinitely.
As the label says: “Past results are no guarantee of future performance.”
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