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Ten psychological problems that traders need to overcome
Author: Koroush AK
Compiled by: Chris, Techub News
The biggest mistake a trader may make in trading may be more from a mental imbalance than a technical error, and similar situations have occurred to countless traders. As a trader, you should avoid making these mistakes:
1. Anchoring Bias
Traders often subjectively fix themselves on a certain price (anchor point), which affects their decision-making.
Ten psychological problems that traders need to overcome
2. Recent Deviation (Recency Bias)
This refers to the tendency for people to remember the most recent information and consider it important.
Traders may bring information from recent trades into the next trade, which can lead to errors during the transaction process.
Ten psychological problems that traders need to overcome
3. Loss Aversion
Traders often have larger emotional fluctuations when facing losses than when facing profits, such as the pain of losing $100 in trading often being greater than the joy of earning $100. This mistake may lead traders to lock in profits prematurely because they fear these gains will decrease or turn into losses.
Ten psychological problems that traders need to overcome
4. Endowment Effect
When traders hold a certain asset, they tend to overestimate its value. This subjective sentiment makes it difficult for them to sell when they are in a loss, or to take profit, because they rely more on their own expectations rather than the actual market situation to judge the future price of the asset.
Ten psychological problems that traders need to overcome
5. Herd Mentality
Whether blindly following the crowd or deliberately going against the grain, there are risks. Stick to your own trading plan and avoid acting impulsively due to herd mentality. Only consider the behavior of the masses when conducting objective market sentiment analysis.
Ten psychological problems that traders need to overcome
6. Availability Heuristic
Traders often tend to follow recent market sentiment and events that occur in the market. For example, the recent market crash may still cause traders to be overly cautious.
Ten psychological problems that traders need to overcome
7. Survivorship Bias
Because we often hear about successful stories, and rarely hear about failed stories, traders tend to subjectively believe that their probability of success is very high.
Ten psychological problems that traders need to overcome
8. Framing Effect
The emotions and confidence of traders play a key role in the trading process. Positive emotions often lead to underestimating risks, while negative emotions may lead to overestimating risks.
Ten psychological problems that traders need to overcome
9. Confirmation Bias
Traders tend to look for data that supports their own views. For example, if you are bullish on a certain asset, you will search for all the information that supports the pump of the asset, while ignoring the bearish information.
Ten psychological problems that traders need to overcome
10. Captain Hindsight
Traders often feel that they had foreseen the outcome after the event has occurred.
This kind of error can lead to overconfidence in future predictions and incorrect judgment of one’s trading ability.
Ten psychological problems that traders need to overcome