Top 10 psychological issues traders need to overcome

Written by: Koroush AK

Compiled by: Chris, Techub News

The biggest mistake a trader makes in trading may come more from a mental imbalance rather than a technical mistake. A similar situation has already happened in on countless traders. As a trader, you should avoid making these mistakes:

1. Anchoring Bias

Traders tend to fix themselves on a certain price (anchor point) very subjectively, which will affect their decision making.

• If Trader A entered the cryptocurrency market when Bitcoin was at $52,000, then $61,000 of Bitcoin would look expensive.

• If Trader B enters the cryptocurrency market when Bitcoin price is $71,000, then Bitcoin at $61,000 appears cheap.

2. Recency Bias

This refers to people’s tendency to remember the latest information and regard it as important.

Traders may carry information from recent trades into the next trade, which can lead to mistakes during the trading process.

3. Loss Aversion

Traders tend to have greater emotional fluctuations when facing losses than when facing profits. For example, losing $100 in trading often causes more pain than making gains. Withdrawing $100 brings greater happiness. This mistake can lead to traders locking in profits too early because they fear those gains will diminish or turn into losses.

4. Endowment Effect

When traders hold an asset, they tend to overestimate its value. This subjective emotion makes it difficult for them to sell at a loss, or to take profits, because they rely more on their own inner expectations rather than the actual situation of the market to judge the future price of the asset.

5. Herd Mentality

Whether you blindly follow the crowd or deliberately go against the grain, there are risks. You should stick to your trading plan and avoid acting impulsively due to herd mentality. The behavior of the crowd should only be considered when conducting objective market sentiment analysis.

6. Availability Heuristic

Traders tend to pay too much attention to recent market sentiment and some things happening in the market. For example, the recent market crash may still cause traders to be overly cautious.

7. Survivorship Bias

Because we often hear success stories and few failure stories, traders tend to subjectively believe that their probability of success is high.

8. Framing Effect

Trader’s emotions and self-confidence play a key role in the trading process. Positive emotions tend to lead people to underestimate risks, while negative emotions may lead to overestimating risks.

9. Confirmation Bias

Traders tend to look for data that conforms to their own perceptions. For example, if you are bullish on a certain asset, you will search for all information that supports the rise of the asset and ignore bearish information.

10. Captain Hindsight

Traders often feel that they have foreseen the outcome after an event occurs.

This error can lead to overconfidence in future predictions and incorrect judgments about one's own trading abilities.

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