Why are the vast majority of retail investors unable to successfully escape the peak?
There is a key concept in psychology - reference dependence: people always subconsciously seek reference points to assist in judgment.
Let me give you a simple example:
If I tell you that I spent 2000 yuan on a plain white T-shirt with no logo, you would probably find it unbelievable, after all, similar styles online might only cost 20 yuan.
But suppose you walk into a luxury store and see a white T-shirt priced at 20,000 yuan, then in another store, a similar style is also priced at 20,000. By the time you finish walking down the street, you have been continuously influenced by such price information, and you gradually feel that “20,000 yuan for a T-shirt seems reasonable.” At this point, if you suddenly see a white T-shirt for 2000 yuan, you might actually think, “That’s quite a deal.”
Why?
Because your internal reference standard has already been anchored by the previous 20,000 yuan pricing.
A similar psychological mechanism strongly influences us in trading as well.
The market continues to rise, but there will eventually be an end. Many people always think: “I can wait until the trend reverses to exit.”
But in fact, the vast majority of people simply cannot do it.
Why?
Because during the upward process, you watch your account's unrealized gains continuously increase every day—especially during the top oscillation phase, that number makes you feel excited and even dependent. It has become your internal “reference point.” Once the market starts to decline, and the unrealized gains gradually shrink, the strong aversion to loss quickly takes over:
“I made so much before, now there’s only this left... If it rebounds a bit, I will exit!”
As a result, while waiting for the rebound, you get deeper and deeper into the situation, ultimately not only giving back profits but possibly even losing your principal.
Reference dependence makes us emotionally hijacked when we should be making rational decisions.
Have you ever found yourself in such a psychological state?
