*Types of Biases that Impact Traders* 👨🏻💻👩🏻💻🧑🏻💻
To understand trading psychology, one must first attain a general understanding of the biases and heuristics of a trader.
*Biases are segmented into two types: cognitive and emotional* .
A *cognitive bias* refers to a systematic pattern of deviation from rationality in human thinking and decision-making.
⭕It is a mental shortcut or tendency that can lead to irrational judgements or flawed reasoning.
⭕Cognitive biases can arise from information processing limitations, heuristics, social influence, or individual experiences.
⭕They often occur unconsciously and can impact various aspects of decision-making, including perception, memory, attention, and problem-solving.
➡️The other side of the bias spectrum is the *emotional bias.*
⭕This speaks to the influence of feelings or mood on decision-making.
⭕Emotional biases occur when fear, greed, or excitement, play a significant role in shaping an individual's judgements and choices.
⭕Emotions can cloud judgement, lead to impulsive actions, or distort perceptions of risk and reward.
⭕These biases can impact decision-making in various domains, including trading, investing, and even everyday life.
⭕Both *cognitive and emotional* *biases* can affect decision-making processes, including those related to trading and financial markets.
⭕Traders need to be aware of and manage these biases to make more rational and informed decisions.
