Successful trading may depend on taking advantage of various indicators and factors that affect the market. One of them is a good understanding of common investor behavior. One of the things that might affect the market as well as trading decisions is the current common sentiment that leads investors to act a certain way. Knowing and understanding such behaviors can actually help traders make better decisions and trading moves. Here are some of the more common investing behaviors.

Certainty Bias

Most investors try to invest on options where they thinks will give them more certainty. Most investors would want to choose investing options that would allow them the best percentage of return or profit as possible.

Regret Theory

Another common behavior seen in many investors is what is known as the regret theory. This theory refers to the emotional reaction most people tend to feel after realizing that they have made an error in terms of judgment. The prospect of losing money in selling the a security tend to make them avoid selling it despite further losing value in terms of price.

The same theory also applies when a certain stock that an investor only considered buying has shown an increase on its value. They might regret not buying the stock in the first place and may lead them to try and buy only stocks that most people are buying. This is to justify their move as something that other investors might also be doing.

Prospect Theory

This theory may explain why some investors try to hold on to losing stocks. The prospect theory suggests that people seem to have a different level of emotion towards gains that losses. People seem to be more affected by prospective losses than with having equal gains. It seems that people look at losses as somewhat larger than gains of a similar size. In the same way, some investors tend to stay with a losing stock position hoping that the price will bounce back and recoup their losses.