trading psychology experiment

Discussion in 'Psychology' started by dafong, Apr 11, 2008.

  1. dafong


    assume you hired 1000 random people and put each of them in a separate room, with their own trading account and a fixed amount of money. Also you have all 1000 trade a fake stock XYZ.

    What do you think would happen to XYZ during the day?
  2. eagle


    If I know I will be very rich :D. Please propose a multi-choices that we can vote. Things like:

    - XYZ will be moving upward.
    - XYZ will be moving downward.
    - XYZ will be moving sideway.
    - XYZ will be halted. :D
    - XYZ ???????
  3. First off, is there any reward for performance or anything? This makes all the world of difference in this specific experiment.

  4. The stock can fluctuate "randomly" but most of the traders will "consistently" lose money.
  5. If there is no reward or anything for this game, I would guess that the stock would open and people would just buy. As price goes up, people want in and more buying occurs. Since people are conditioned to buy and not short, my guess is that when people are done buying, and if there is no reward, people would just hold and hold all day. If no one is selling and everyone in this experiement is just long, the charts would show no panic to get out and so the lemmings wont be afraid. Maybe into the close when people realize that price isnt going up anymore (but not necessarily down either) and feeling like maybe getting out before the close would be a good idea, will you see a blip down in price and possibly a collapse.

    If you offered a reward for the most $$ gained or something intraday, then the scenario would be a lot different.
  6. dafong


    well, let's just say if u lose money then u owe money and if u win money, you make money. The thing is that XYZ has no past history, no news, no charts.

    As for the bandwagon effect where the stock will keep going up, couldn't that work if the stock ticks down at the open and people start selling.
  7. people, especially a random assortment of people, are unfamiliar with the concept of shorting. They are conditioned to buy, so it wouldnt make sense that they would think to short off the open and take price lower. Thats just my guess based on knowing peoples long bias built into their brains by the "man". :)

    Ok so there is a reward AND a punishment just like in the real world of trading. Now things will get interesting. My guess would be that price will surge off the open as the sheep buy and buy but then I think the chart will get very sloppy with very little rhyme or reason after that. My guess is that there will be a slightly long bias throughout the day as the masses only know that buying and price going up means "making money" but I think the action will be random and sloppy within that slight bias.

    If everyone has the exact same amount of money to trade with, you cannot having someone with an endless supply affecting the stock so manipulation is out of the question.

    I dont know, this is a tough question, there are so many possibilities but assuming the 1000 people are not savy, this would be my guess on what could happen.

  8. cd23


    There will be a cascade down about 20 minutes into the open.

    Those few who were late to begin day will make money on shorting briefly until they get whipsawed (cascade up) when their protection gets hit on bottom spike

    Those whose stops were hit causing the cascades (limits that turned to market orders) will be on sidelines most of day.

    All in all the day will be like an announcement (news) day that causes these people who all are trading same size accounts to moslty blow out on cascading of market first short then long.

    This is about like letting the sheep out of barns for the first time in the Spring in Switzerland. Everone knows how the herd dogs are going to handle it. The sheep are, in effect, blind and they do not know what is going on at all.
  9. You know back when the stock market was tiny a stock was bulled up by powerful parties. So you end up with the classical bull market pattern. You have 1 person buying at first then aggressively bids the price up and that attracts most of the rest then he sells at that point and the price collapses and doesn't go anywhere for a while.
  10. I'd be surprised if there were any people in the 1000 that undrestand the concept of shorting. They can spend money they don't have, but selling something that isn't yours (unless your a pimp), they're clueless.

    Anyway, as previously mentioned you're gonna have a stair stepping upward pattern until everyone runs out of buying power, then this thing will fall thru the floor when they run for the exit. When the price comes all the way back to the open they'll be brave enough to start buying again.
    #10     Apr 12, 2008