We all live in a state of denial all the time. At a recent Bollywood theme party that I attended I saw people dressed up like movie stars. Looking at them, you could not find the stars they were trying to portray although they were convinced that they looked like them. No harm done though.
Stock market is one place where living in denial could cost you lot of money. When the market was in bullish grip as it was till few weeks ago, people were in a state of denial that the market would go down. They were all the time buying with greed of not having being left out. During the denial phase the majority of investors were still in a bullish frame of mind after seeing continual profits in their account and having seen the market bounce back from earlier corrections.
And it did indeed pulled back by 10%.
Now market was totally in a state of panic till few days ago. People refrained from buying living in a state of fear and market will go down further. They were in the state of denial that the markets will go up.
And it did indeed went up by 7%.
What does it all mean? It means that people were buying when it was time to sell and doing the reverse or not doing anything when it was time to buy.
Why does it happen? Why do people go wrong all the time in timing market to make quick gains? Ask yourself. I reiterate that the market besides all its fundamentals and technicals, runs on one basis fundamental of greed and fear. Our emotions control much of our actions in stock market. We just fail to understand one basic truth of the market that market will rise to fall and fall to rise.