Written by Koroush AK
Compiled by: Chris, Techub News
The biggest mistake a trader makes in trading may be more due to an imbalance in mentality rather than a technical error. Similar situations have happened to countless traders. As a trader, you should avoid making these mistakes:
Anchoring Bias
Traders tend to be very subjective and fix themselves to a certain price (anchor point), which affects their decision-making.
If Trader A entered the cryptocurrency market when Bitcoin was at $52,000, then Bitcoin at $61,000 would look expensive.
If Trader B entered the cryptocurrency market when Bitcoin was at $71,000, then Bitcoin at $61,000 would appear cheap.
Recency Bias
This refers to the tendency of people to remember the most recent information and to regard it as important.
Traders may carry information from recent trades into their next trade, which can lead to mistakes in the trading process.
Loss Aversion
Traders tend to experience greater emotional fluctuations when facing losses than when facing gains, such as the pain of losing $100 when making a trade is often greater than the joy of making $100. This mistake can cause traders to lock in profits too early because they are afraid that these gains will be reduced or turn into losses.
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 expectations than on the actual market conditions to judge the future price of the asset.
Herd Mentality
There are risks involved whether you blindly follow the crowd or deliberately go against it. Stick to your trading plan and avoid acting impulsively due to herd mentality. The crowd's behavior should only be considered when conducting an objective market sentiment analysis.
Availability Heuristic
Traders tend to focus too much on recent market sentiment and what is happening in the market. For example, the recent market crash may still cause traders to be overly cautious.
Survivorship Bias
Because we often hear stories of success and rarely stories of failure, traders often subjectively believe that their probability of success is very high.
Framing Effect
A trader's emotions and confidence play a key role in the trading process. Positive emotions tend to make people underestimate the risk, while negative emotions can lead to overestimation of risk.
Confirmation Bias
Traders tend to look for data that supports their own views. For example, if you are bullish on an asset, you will search for all the information that supports the asset's rise and ignore the bearish information.
Captain Hindsight
Traders often feel that they have foreseen the outcome of an event after it occurs.
This error can lead to overconfidence in future forecasts and misjudgment of one's own trading abilities.
