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. Indicator

    Indicators are statistics used to measure current conditions ...
  2. Positive Feedback

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

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

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

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

    The number of shares or contracts traded in a security or an ...
RELATED FAQS
  1. How does days to cover a short position relate to a short squeeze?

    Days to cover a short position reveals the intensity and duration of a potential short squeeze. A short squeeze occurs when ... Read Full Answer >>
  2. Is it better practice to use a stop order or a limit order?

    Both stop orders and limit orders have their advantages and disadvantages; traders need to decide between the two based on ... Read Full Answer >>
  3. What is the difference between a buy limit and a sell stop order?

    A buy limit order is a specific type of buy order used to enter a market, while a sell-stop order is a sell order that can ... Read Full Answer >>
  4. What is the difference between a short squeeze and a long squeeze?

    A short squeeze and a long squeeze are situations that can force traders and investors out of their positions. A short squeeze ... Read Full Answer >>
  5. Why does the efficient market hypothesis state that technical analysis is bunk?

    The efficient market hypothesis (EMH) suggests that markets are informationally efficient. This means that historical prices ... Read Full Answer >>
  6. What does it mean to be absolutely risk averse?

    Some people are absolutely risk-averse, which means that they cannot tolerate sustaining any sort of loss, even a temporary ... Read Full Answer >>
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. Trading Strategies

    How To Cover Your Bases After Making A Trade

    Follow up your trade entry with these time-tested risk management strategies.
  7. Chart Advisor

    Commodity Traders are Watching These 3 Charts

    As we head towards the summer months, many commodity traders are looking to diversify their holdings and to protect themselves against inflation.
  8. Trading Strategies

    Micro-Patterns: Looking At The Smaller Picture

    Micro-patterns within trading ranges reveal hidden characteristics of the bull-bear struggle.
  9. Active Trading Fundamentals

    Managing Forex Trading Profits for Better Returns

    How to balance anticipated vs. confirmed trades to manage potential profits and lower risks.
  10. Trading Strategies

    Trading Risks And Rewards In Your Favor

    Measure reward and risk targets before taking a trade, and let those numbers guide your open position.

You May Also Like

Hot Definitions
  1. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  2. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  3. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  4. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
  5. Terminal Value - TV

    The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as ...
  6. Rule Of 70

    A way to estimate the number of years it takes for a certain variable to double. The rule of 70 states that in order to estimate ...
Trading Center