Panic selling is an emotional reaction to a sudden price drop, driven by fear rather than fundamental analysis. It is often the result of the amygdala hijacking our rational decision-making processes.

Studies in behavioral finance show that humans are wired to prioritize immediate survival over long-term gain. When we see our portfolio value dropping, our brain equates it to a physical threat. The urge to 'stop the pain' becomes overwhelming, leading us to sell assets at a loss just to relieve the anxiety.

However, historical data consistently shows that the best days in the market often follow the worst days. By selling during a panic, you lock in losses and miss the subsequent recovery. To combat this, set pre-defined exit strategies and stop looking at your portfolio daily during volatility.