Framing Effect in Investing and Trading
The framing effect shapes trading and investing decisions in ways that often go unnoticed. Small changes in wording, context, or presentation steer how market information is interpreted, influencing reactions even when the underlying data stays the same. In this article, we will discuss what the framing effect is, where it comes from, the main forms it takes in financial markets, and how traders may identify and deal with its influence.
Key Takeaways for Traders and InvestorsThe framing effect shifts trading behaviour by changing how identical data is presented, influencing reactions before deeper analysis starts.
Headlines, performance metrics, and reference levels often shape market tone through selective framing.
Gain-loss framing, time-horizon framing, and reference-point framing steer attention toward specific narratives.
Reframing data, checking raw figures, and comparing multiple horizons potentially reduce framing-driven bias.
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