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The psychology of Stocks, Futures and Options.

March 9, 2010

Most investors are “regular” folks. They seek out conventional investing. You don’t need to learn to trade. You purchase bonds, Mutual Funds, Limited partnerships, stocks, Futures or Options on the  recommendation of trusted traders, financial advisers, relatives, neighbors, TV pundits, others,  or you do it yourself on the computer. Most conventional investors end with a small retirement fund, smaller than what they envisioned in their youth. You lose some money, you make some money, at times of market upsurge you can even make more than 10% profit. Life is a constant struggle.

A few lucky investors are “maverick.” Behavioral investing requires that you memorize about a 100 market psychology rules and use them. You identify  a company with an “A+”  leadership ” CEO, that makes an “A+” product, and has an  “A+” skilled marketing strategy. You buy the shares when they land on a support platform and you sell when the stock touches s resisting ceiling. Nothing in the world of investing is easier to learn than the psychology of estimating stock movements. Life becomes an experience in accumulating wealth.

Many investors think of their economic future as full of “pitfalls” and they are determined to insure their assets against heavy losses. Enters arbitrage investing in Futures and Options, a program that can “hedge” your losses that I think only genius investors or traders can handle with “A+” skills. Hey, if you sign a Futures Contract, you have to trade something you are not sure about at an estimated variable market price on a fixed future date, a difficult task to master even for a genius with super  statistical skills – thus, hedging your bet has to act as your insurance. If you sign an Option Contract, you get an option to trade your commodity at a fixed price on a variable date, an even more risky business if the contract is short, that requires hedging your losses. The complex interaction between time of trade and price of derivative is made even more restrictive with the introduction of the variable and fixed conditions. Think twice before you try to “hedge” your bet.

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