Sometimes everything seems to be going well on the stock market, but suddenly a sharp sell-off begins. Stocks that were rising until yesterday suddenly crash, no one wants to take risks, and a wave of panic spreads. So, are these irrational movements only due to market conditions? Or why do you start taking more risks when you catch a rising streak? In fact, there is a bigger factor behind investment decisions than we think: Our hormones.

Testosterone and cortisol hormones in particular directly affect investors' risk appetite, moments of panic, and decision-making processes. If these biological factors are not recognized, your investment strategy may be much more emotional than you think. Let's go into a little more detail.

Who really determines investment strategies?

Researchers from the University of Cambridge and Imperial College London reveal that markets are much more complex than we think. Big rallies and sharp declines cannot be explained by macroeconomic data alone. Hormones directly affect investor psychology, causing fluctuations to accelerate. A study conducted at the University of Cambridge found that the morning testosterone levels of professional investors in London were directly related to their earnings during the day. Investors with higher testosterone levels in the morning made more profits by making more aggressive trades throughout the day. This effect even turned into a cycle: As the profit increases, testosterone increases, and as testosterone increases, more risk is taken, which leads to bigger gains or losses. You can compare this situation to winners in sports betting playing again at higher odds or players who win big hands in poker turning to riskier moves. Because the feeling of success triggers the brain's reward system, increasing the urge to take more risks.

However, the dangerous part is this: As testosterone increases, overconfidence kicks in and realistic risk perception is distorted. An investor who is on a winning streak can be dragged into big losses by opening positions that are too large. For example, an investor who has won several days in a row may decide to open a big position using all the cash he has. However, not everything goes well in the market. A rising stock or market will correct at some point and an investor who takes excessive risks may face a big loss. Therefore, making big profits can distract the investor from thinking disciplinedly. Professional investors manage to protect themselves from big losses by trading with the same discipline even during profit streaks.

The stress hormone cortisol: The invisible power of panic selling

Now let's think about the opposite. Markets are falling, uncertainty prevails and everyone is selling. This is exactly where cortisol levels start to rise. Research shows that during periods when investors' stress levels reach their peak, market liquidity decreases and investors completely avoid taking risks. This creates a huge paradox: While short-term cortisol increases encourage more risk taking, long-term high cortisol levels cause complete avoidance of risk. In the 2008 financial crisis, investors' cortisol levels increased by 68% and market trading volume decreased significantly during this period. The longer the stress lasts, the less investors trade and the markets become increasingly stagnant.

Critical differences between male and female investors

The famous question of Christine Lagarde, former IMF president and current European Central Bank president, was: “What if Lehman Brothers were Lehman Sisters?” Although it may seem like a gender equality debate at first glance, scientists say that investors’ behavior is shaped not only by social factors but also by biology. There are serious differences between male and female investors due to hormone levels, and these differences are directly reflected in market dynamics.

A study conducted at the University of Leicester found that as the proportion of women in the financial sector increases, daily market volatility increases but systemic risk decreases. In other words, while short-term fluctuations in the market increase, the probability of major crashes decreases. What could be the reason for this? Female investors generally make more stable decisions, are less likely to take excessive risks, and think longer-term in their decisions. Male investors, on the other hand, take more risks during periods of gain due to the effect of testosterone, which can cause major fluctuations.

For example, when a financial institution sets up an aggressive bonus system that rewards the most successful investors, investors who take risks are incentivized. This can lead overconfident male investors to open larger positions and cause sudden movements in the market. Although it is generally thought that female investors make more stable investment decisions due to their lower testosterone levels, this does not mean that female investors do not take any risks. On the contrary, they can achieve more stable returns in the long term by taking more conscious and strategic risks.

So, how can you minimize the effect of hormones on your investment decisions?

Now let's look at the more practical part. If you are investing, knowing how your hormones can affect your decisions, whether consciously or unconsciously, can be a great advantage to you. Be careful when you hit a winning streak. If you feel overconfident, it could be the effect of testosterone. Make sure you are thinking logically and try not to let your emotions get in the way of your trades. Is holding on to losses for a long time a conscious decision? Or is your stress level holding you back? High cortisol levels can cause you to hold on to losing positions for a long time. Realizing this can be one of the keys to minimizing your losses. Risk management is everything. Being aware of our biological responses is an important step in managing risk correctly.

You may be trading on the US stock exchange. But remember, the winning investor is not only the one who reads the markets, but also the one who knows his own psychology and biology. Because sometimes your biggest enemy can be your own hormones. For your next investment decision, it might be a good idea to take a look not only at the charts in front of the screen, but also at your own state of mind. Who knows, maybe your best investment strategy is to know yourself better.