Loss Aversion - The human mind is designed to feel the dip harder than it really is.

In behavioral economics, loss aversion is a linchpin. The cornerstone has been hardwired into human behavior through the evolutionary process. Basically, the human brain will always tend to go for "guarantees" than "risks". For instance, if you were given the option of gaining $100 with a 14% chance of success, or a guaranteed $50, you would most likely go for the guarantee. The weight of the loss is much higher in your decision making and you will most likely try to avoid it.

Similarly, the endowment effect takes place as it is hardwired into our brains. It is a theory, one that suggests that humans tend to weigh losses a lot more than gains/profits. It may stem from the ancient times where losing a day's fruit or kill when living in a highly risky area would more likely lead to death, and losing a day's sustenance wouldn't mean so much in a more secure area.

The two theories, which are really close to similar, are now much more than applied theory based on neanderthal survival or death. As humans have evolved, and life decisions have become much more complicated, the theories are in play in everyday decision-making; including trading.

Taking a look at the past few days, it is obvious that many found it really difficult to feel rather satisfied with how the market was reacting. Observing these theories could explain the attitude portrayed by a majority of the market participants. However, the theories also prove that the market may not be as bad as it may seem to us.

I am still going to assert that it all very relative. The market is still not in bad position, not unless you have bought in at the high highs and looking at the market now. But, if you have been in the market, even from as recent as a month back, you must be in a really comfortable position.

The bottomline is that witnessing the highs has created an opportunity for us, which you may or may not have been able to profit off. It is a sort of FOMO - missing out on the profits, the ATH ones. Nevertheless, not being able to profit off the highs has lead us to the hardwired reactions. Feeling a little disappointed, anxious, maybe even scared, since that opportunity has left. It does not mean the end of all, you may still be in a good position. And still, you may be feeling down, but its just hardwiring.

Hence, get rid of emotions when it comes to investments and trading.

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