Understanding Behavioral Finance Through Biases and Traits of Trader Vis-À-Vis Investor

Behavioral finance said to be a field of finance that proposes psychology-based theories to explain stock market anomalies. Within behavioral finance, it assumed that the information structure and the characteristics of market participants systematically influence individuals’ investment decisions as well as market outcomes. When it comes to investing, trading or making financial decisions, an individual is not always as rational as he thinks he is. Several studies in the field of Behavioural Finance have shown how individual emotions and biases cloud over rational thinking and decision-making. Some emotional and cognitive biases such as loss aversion (expecting to get high returns with low risk), herding (imitating others decisions), media response (overreacting to headlines), and timing the market, etc. impact the overall performance of ones investments. This paper on understanding behavioral finance through biases and traits of trader vis-a-vis investor attempts to fill the void and explore the relationship among these factors. The concluding observation is that understanding various behavioral key biases and traits can help individual take sound financial decisions and in turn make him a better trader/investor.