Understand the psychology of the stock market

By CEO Espen Grønstad

Technical analysis and behavioural finance use investor psychology to predict future stock market developments. Investor psychology is based on the fact that humans to a large extent are driven by basic needs, in which pain and pleasure are important reasons for the choices we make. Even though companies and technologies have changed, we are influenced by the pain of losing and the joy of winning. Consequently many of our choices are largely based on emotions and not rational assessments.

Fundamental analysis faces similar problems. Large, reputable stock brokers arrive at different fundamental conclusions, even though they have access to the same information and underlying assumptions. This shows that the subjective human factor in making the assessment is more important than the actual circumstances. We need to take this into account when making our investment decisions.

Studying the stock price allows us to identify patterns and trends that represent the greed, fear and insecurities experienced by investors. Sustained movements when large market sentiments are moving are hard to stop, and they give us, as chart analysts, a big advantage. Through solid research and the development of algorithms in behavioural finance, Investtech has shown excess return compared to market index. Read more about our results on our Research pages or try our analyses for free for 14 days.