Negative Feedback

AAA

DEFINITION of 'Negative Feedback'

A pattern of contrarian investment behavior. An investor using a negative feedback strategy would buy stocks when prices declined and sell stocks when prices rose, which is the opposite of what most people do. Negative feedback helps make markets less volatile. Its opposite is positive feedback, in which a herd mentality pushes high prices higher and low prices lower.

INVESTOPEDIA EXPLAINS 'Negative Feedback'

On an individual level, negative feedback can refer to a pattern of behavior in which a negative outcome, such as executing a losing trade, causes an investor to question his or her skill and discourages him or her from continuing to trade. Developing a rational trading plan and sticking to it can help investors maintain confidence and avoid falling into a negative feedback loop even when they execute a losing trade.


RELATED TERMS
  1. Positive Feedback

    A self-perpetuating pattern of investment behavior. The herd ...
  2. Negative Return

    This occurs when a company or business has a financial loss or ...
  3. Negative Assurance

    A representation that particular facts are believed to be accurate ...
  4. Negative Verification

    A system of confirming that a bank's records agree with a customer's ...
  5. Volume

    The number of shares or contracts traded in a security or an ...
  6. Feedback-Rule Policy

    An economic policy that is triggered when a certain economic ...
Related Articles
  1. Trading Strategies

    Patience Is A Trader's Virtue

    Waiting may be the biggest key to reeling in that trophy investment.
  2. Forex Education

    9 Tricks Of The Successful Forex Trader

    These steps will make you a more disciplined, smarter and, ultimately, wealthier trader.
  3. Forex Education

    Using Feedback To Improve Your Trading

    Positive and negative trading experiences can affect the way you trade. Find out how.
  4. Active Trading

    Traders: Profit From Other Investors' Fear

    Learn to pounce on the opportunity that arises when other traders run and hide.
  5. Active Trading

    Tales From The Trenches: Don't Count On Luck

    ChartAdvisor experts illustrate why it's important to stick to your strategy.
  6. Chart Advisor

    Trade Strong U.S. Small Caps with this ETF

    While most investors focus on the Swiss franc, quantitative easing or other global economic indicators, small-cap stocks have been outperforming.
  7. Chart Advisor

    These 4 Stocks are Hitting Technical Headwinds

    These up trending stocks are showing signs of weakness, indicating it may be time to sell.
  8. Trading Strategies

    5 Ways To Adapt To Tough Markets

    Tough markets undermine profitability and lower self-confidence. Fight back with five simple but powerful rules of engagement.
  9. Active Trading Fundamentals

    What is the difference between cash flow and fund flow?

    See how cash flow and fund flow differ from each other, and why fund flow can be used very differently by accountants and investors.
  10. Active Trading Fundamentals

    How do central bank decisions affect volatility?

    Using an aggregate, macroeconomic perspective, take a look at how some of the ways central bank decisions can impact market volatility.

You May Also Like

Hot Definitions
  1. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  2. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  3. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  4. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  5. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  6. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
Trading Center