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Chapter 7. Option Strategies in Down Markets > Thinking Outside the Market Box

Thinking Outside the Market Box

What characterizes the “crowd mentality” of the market? Fear and greed often have more to do with decision making than does prudent or analytical, strategic thinking. While an academic approach—usually taken by someone with no money at risk—may dictate against fear and greed, it is far more difficult to ignore those emotional responses to market trends when you have capital at risk.

Knowing this, how can you proceed? How can you manage and resist fear and greed to avoid making the common mistakes? Investors often describe themselves as conservative, but they act irrationally when sudden and unexpected trends emerge. They may also say they base decisions on the fundamentals, but they watch index movements, short-term price trends, and other newsy but not especially useful forms of information. Valid fundamental data is less exciting than current-day price movement and far more difficult to convey in a 10-second television or radio news bite. As a consequence, the vast majority of news that investors receive through television and radio is useless. The print media are more useful to the extent that stories go into greater depth and may be more analytical. Coverage by the leading financial newspapers and magazines is superior to television and radio media, primarily because the venue is more suited to the kind of fundamental and analytical information investors need.


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