Positive Feedback

AAA

DEFINITION of 'Positive Feedback'

A self-perpetuating pattern of investment behavior. The herd mentality that causes investors to sell when the market is declining and buy when it's rising is an example of positive feedback. Positive feedback is the reason why market declines often lead to further market declines and increases lead to further increases. It is also a source of market volatility. When a cycle of positive feedback continues for too long, it can create an asset bubble or a market crash.

INVESTOPEDIA EXPLAINS 'Positive Feedback'

On an individual level, positive feedback can refer to a pattern of behavior in which a positive outcome, such as executing a profitable trade, gives an investor the confidence to pursue further positive outcomes. Developing a rational trading plan and sticking to it can help investors stay confident and maintain a positive feedback loop even when they execute the inevitable losing trade.

RELATED TERMS
  1. Negative Feedback

    A pattern of contrarian investment behavior. An investor using ...
  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. Tulipmania

    Tulipmania was the first major financial bubble. Investors began ...
  5. Negative Verification

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

    Statistics used to measure current conditions as well as to forecast ...
Related Articles
  1. The Importance Of Trading Psychology ...
    Options & Futures

    The Importance Of Trading Psychology ...

  2. Introduction to Types of Trading: Fundamental ...
    Trading Strategies

    Introduction to Types of Trading: Fundamental ...

  3. Using Feedback To Improve Your Trading
    Forex Education

    Using Feedback To Improve Your Trading

  4. Introduction to Types of Trading: Technical ...
    Forex Education

    Introduction to Types of Trading: Technical ...

comments powered by Disqus
Hot Definitions
  1. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  2. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  3. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  4. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  5. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  6. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
Trading Center