From the Inside Flap
Pure financial theory does not take into account people's emotions, prejudices or expectations. These frequently lead to poor decision making.
Despite knowing the slim chances of success, many people are prepared to gamble on events in which they have little chance of winning in the hope of high rewards. This is evidenced by the success of lotteries throughout the world. Therefore, the behavior patterns of society can override the mathematical theory. Many people also listen to gossip and tips or follow the crowd rather than impartially evaluating the facts.
In this book the authors, an experienced financial practitioner and a financial theorist with specialist knowledge of market psychology, explain the new science of behavioral finance. The book examines the human decisions that cause price movements in the stock market, how investors select their information and what informs their trading, in their quest to find even better opportunities for investment.
The book is divided into seven chapters, each offering practical analysis and advice:
* Forecasts: fundamentals, technical analysis and behavioral finance
* An analysis of exposure: desire and reality
* Dams to combat the flood of information: strategies for controlling difficult situations
* Everything is relative - even the evaluation of gains and losses
* People like to see themselves in a favorable light: the consequences of psychological needs
* Everyone is different: three types of market participants
* Free advice: valuable tips for successful trades
From the Back Cover
The accurate prediction of stock market trends is the ultimate objective of all involved in the financial markets. Increasingly sophisticated mathematical models have been developed in order to predict future trends and minimize risk. Yet they have done little to increase the reliability of predictions. The reason is the central role played by human psychology in all investment decisions.
Irrational decisions, the authors argue, are not made due to a lack of technical tools but as a result of particular behavior patterns. Strong emotions, such as greed and fear, over confidence in one's own abilities and the desire to be ahead of competitors influence (and often override) perception and the decision making process.
Behavioral finance is the scientific study of human behavior. This new young science is rapidly proving invaluable to the financial community to assist traders in controlling their own irrational behavior and predicting that of others.
A fascinating book that demonstrates clearly how behavior-orientated analysis of the financial markets can explain and account for fundamental principles in technical analysis, this book will be an essential companion for anybody interested in this exciting new discipline.
