Trading psychology

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Contents

Trading Psychology: Control Your Impulses

Think about the end of the matter, about getting out happily, and not about getting in nicely. Vitelo

The most serious illness of many novice traders is lack of discipline. Instead of following a deal plan, many newbies lose control. They impulsively abandon their plan, reaping the benefits in the form of unstable profits, and often serious losses. Psychologists regard discipline as a “control of impulsiveness”. There are a number of classic studies that illustrate how people can enhance their ability to control impulses. As a trader, you may find these strategies to increase your level of composure interesting.

In an original study of impulsivity control, Dr. Walter Mischel and colleagues examined children’s ability to delay reward. Like many children, the participants were a little hungry and were invited to eat bagels. To get a bagel, all that was needed was to press the call button and the laboratory assistant would bring the order. But there was a catch: If they waited, not succumbing to the temptation to call, they could receive a whole bunch of bagels, a delayed but more desirable reward. This study focuses on the situational and psychological factors of how long a child could delay receiving a reward. The first factor is the appearance of the reward, whether it was directly in front of the child or was hidden. As expected, it is difficult to set aside a reward if the bagels are directly in front of you. The children could not wait. When the food lay right in front of them, they preferred to eat one bagel right away than expect a bunch later. This conclusion is especially applicable to trading.

In trading, it is considered not too reasonable to constantly monitor the progress of the transaction on the screen. Some traders say this is much like a slot machine. It just tempts you to play when in reality you only need to wait for the exit signal. If you have a problem with impulsiveness controlYou should avoid hypnotizing the screen when there is no immediate reason to control the deal. To combat impulsive temptations you can use automatic orders of your trading platform. Regardless of what you do, it’s useful to remember the natural human tendency to want to close a profitable deal immediately to avoid risk, rather than patiently waiting for a signal and coming out according to your trading plan.

To enhance impulsivity control can also use thinking strategies. For example, Dr. Mischel found that children could resist the urge to eat bagels if they changed their minds. If they thought of bagels as food, they were hungry. But if they represented bagels, like wooden or plastic wheels, it was much easier to hold on. Similarly, if they pretended to have a frame around the donut and convinced themselves that they were just seeing the donut drawn, it was easier for them to defer the reward. This find is also suitable for trading.

One of the main reasons that force novice traders to abandon the trading plan is that they are considering capital invested in a transaction, like real money. They think about what exactly they could buy with this money, and how nice it would be to spend it. Of course, just real money has been invested, but you should not consider it from this point of view. It is useful to treat capital as abstractly as possible. It is better to see in it percentages or only numbers that do not relate to anything tangible. So it will be easier to maintain discipline. Just as children can refrain from bagels if they do not see food in them, traders can avoid acting under the influence of fear and greed if they do not see cars, luxury goods or houses hidden in the capital. This may turn out to be an exercise for the mind, but it works. The stronger you abstract from moneyinvested in a particular transaction, the more logical and impassive you will act.

If controlling impulsiveness is a problem for you, do not lose hope. Exist Trading Strategythat you can use to enhance your ability to maintain discipline: Avoid looking too often at the screen and abstract as much as possible from the deal. Never forget to follow a detailed transaction plan; do not leave without a single chance the development of events or you will be tempted to refuse the plan, you will be able to trade more consistently and profitably, and achieve long-term success winning trader.

Trading Psychology: How To Control Emotions While Trading

Trading is not what most people think it is.

The Hollywood version of trading, where huge sums of money are made effortlessly by smiling traders in a matter of seconds, can often seem alien to anyone who trades for real.

It’s also changed structurally too, with trading now making a huge impact online. It can be done from home, with the same results the Wall Street guys get being available to the guy sitting in his living room in his jeans.

The Ups n’ Downs

One aspect that can prove to be especially traumatic is the ‘rollercoaster’ nature of trading.

This is true for home traders as well as the professionals on the exchanges. The psychological aspect of trading, where your brain has to deal with losing as well as winning, often within a matter of seconds, is the hardest part to get right.

Knowing how to manage your trading psychology and becoming a winning trader is vital. If you can’t take the pressure, you won’t get far. And this is true no matter what your trading strategies are.

Your first step in gaining a trading mindset involves you, and mastering your own emotions. Once you step beyond yourself a little and look at trading objectively, you’ll have a better chance of surviving … and thriving.

There are a few things you need to master to become a consistently profitable trader:

Out of all the mentioned tools, trading psychology is perhaps the hardest thing to get right in trading.

Trading is not an exact science, it’s rather art. While you can create and follow rules with your trading strategy, it becomes quite hard to have strict rules with trading psychology and controlling your emotions. How will you control fear and greed – some of the most devastating emotions in trading – in your next trade?

In the long run, your trading success might depend exactly on the answer to that question.

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Do Your Homework: Analyse the Markets

Analyzing the markets and having a good background for each trade that you’re taking can make wonders in controlling your emotions. The more you actually research the markets, the less you have a gambler’s mentality. This will also help keep your emotions under control.

The markets are fascinating things. If you spend time researching industries and companies within them, you will start to understand the context price moves. You’ll also be better placed to manage the rollercoaster of emotions, profits and losses.

For example, if you know things are bad in a certain company, you’ll be confident about short-selling that company or exiting out of your long position.

This should allow you to think more sensibly about markets and trades, and eventually come up with a trading plan. This is where you work out and articulate how you will act and what you will think when you trade.

A good trading plan allows you to work out what your expectations are, what you are like personality-wise as a forex trader, and what to avoid. Knowing the markets and currencies through deep research is a great way to build a foundation for a good trading plan.

Do Some Research into Successful Traders

Knowing how the most successful FX traders work can only give you full and deep insights into the best way to trade. Pretty soon, you’ll understand the objectivity involved in solid trading. Many successful traders treat what they do like running a business.

They don’t let emotions get involved, ever.

The aim is still to make money, but to manage risk at the same time. Studying successful traders will help your own trading in a huge way. You can really benefit from someone who has ‘made it’.

Many traders often talk in terms of absolute returns when they’re asked about their trading performance. However, a much better measure would be to talk in terms of risk-adjusted returns and Sharpe ratios.

It’s not about how much return you can make in absolute terms, but how much you’re risking to achieve those returns. Following and learning from successful traders can show you how to manage your emotions the right way, both when making money and when losing.

Intraday Trading Psychology

Day trading (or intraday trading) is tough.

It is perhaps the one area where fear of loss can have the most devastating effect.

Everything happens on the day, whatever you trade, therefore the minutes and hours can be almost unbearably stressful. The trading psychology behind the life of successful day traders is quite simple though, and once you get the main principles down, you should be better equipped to deal with the roller coaster.

Losing money is OK

First up, remember that you are going to lose money. This is going to happen, and it cannot be avoided in the long term no matter what you do. There are factors outside of your control, and this means that you can prepare as much as you like, something will still go wrong.

Keeping that in mind, remember also that this doesn’t have to be a bad thing. If you lose money, so be it. The nature of intraday trading is that things move very fast. If you actually expect to lose some of the time, but make larger winning trades when you do win compared to when you lose, then you are making progress and profit.

Remember that business analogy?

If you win, say 60% of your trades, you’re doing well. And because you’re often making big and small trades, your big trades will also come up trumps too. Over time, and with your business mindset, you’ll see that ‘profit and loss’ are perfectly natural partners.

Traders can’t control the markets. The only thing we can control is our risk and our mindset. Even the best traders out there don’t have a success rate of 100%, and the key isn’t necessarily to increase your success rate.

Profitable traders make more on winning trades than they lose on losing trades – that’s it. In fact, many of the most successful traders take a large number of losses along the way until one winning trade makes their month or quarter.

Remember: The key is to make more than you lose, with losses being an integral part of the game.

Only Trade With Money You Can Afford to Lose

This is one of the principles that are part of true trading success.

Everyday, no matter which mood you happen to be in, or what’s happening in your life, you should only ever trade sums you can afford to lose.

Obviously, no one can really afford to lose money, but if you have a certain percentage of your money that you are prepared to lose in the pursuit of large gains, then you should feel better as the day moves on.

Stepping over the line and trading more than you can comfortably afford to lose will simply make you feel more stressed and then this will force your emotions into the driving seat. You’ll make bad decisions, and they can become catastrophic. This applies to all trades, whether on the foreign exchange (forex) or traditional stock trading.

You will feel better if you know the world isn’t going to end if a bad trade happens. This is again all about staying objective and maintaining your business mentality.

The concept of “risk per trade” fits perfectly into this discussion.

To limit your losses and grow your trading account, you should only risk a fixed, predetermined percentage of your trading account on any single trade. Depending on your trading account size, this can be anything from 0.1% to 3%. Each trader has his own rule how much he’s willing to risk on a single trade, but the key is to keep that percentage low.

Imagine risking 10% of your trading capital on a single trade. A losing streak of 5 trades will wipe out 50% of your trading account! In this situation, you’ll need to make a return of 100% only to get back to your previous account size.

As a rule of thumb: The larger your trading account the less you should risk on a single trade, in percentage terms. A trader with a $5,000 account could risk 5%, but a trade with a $500,000 would be better off by risking up to 1% of his account size.

The 6% Rule

If you aren’t controlling your risks effectively, your emotions could kick in and devastate your trading day . It’s important that you focus on making sure that your loss limit is sensible, and one that keeps you able to manage your financial situation effectively.

Most successful traders set a loss limit on all open trades at around the 6% level. This keeps them both afloat and ready to fight another day. It’s a vital part of money management.

If you’re risking 1% of your trading capital per any single trade, you may open up to 6 trade simultaneously. The 6% rule avoids that piranhas – or many losing trades – wipe out your trading account.

This is a crucial principle to make clear.

Sitting back and cutting your losses is actually part of a successful trader mindset. Ignoring this makes no sense.

Set a sensible loss limit and leave it there. Then get on with your trading. This way, no matter what happens, you’re not going to lose the farm even if you have a bad day.

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Benefits of Technical Analysis

This point relates to the necessity of analysing the markets in order to control your emotions.

If you look at the biggest traders of all time, people like George Soros, for example, you’re sure to spot the one thing that links them all together. They developed strong technical analysis skills.

By knowing what the markets are like on a daily basis, point for point, and seeing trends over time, you are in a much better position than the vast majority of traders out there. While some traders are flying by the seat of their pants and hoping for the best, you’re picking stocks that you know have some value and clear prospects.

Technical analysis takes time though, and this is something that you need to be aware of. It will help your trading mindset if you’re able to put in the hours and understand technical analysis at a competent level. You don’t have to be a Soros, but you do need to know the basics.

Trust us, having an understanding of technical analysis and being able to apply it to your trading on a daily basis will make you feel less stressed and more able to handle your emotions.

Avoid these Common Mistakes of New Traders

The following areas are the biggest ‘traps’ a trader can face as their career progresses. Take a look at them and bear them in mind as you work to master your emotions.

Fear of missing out (or FOMO). A common problem with inexperienced traders, and perhaps especially new day traders. This is where you see some traders making a big win on a stock or option, and you jump in. You’ve jumped in at the wrong time though, and you end up making a big loss. This can all be avoided if you’ve followed your own rules, and focused on making informed decisions. Never chase the market for trading opportunities. Good setups form over and over again, and your job as a trader is to strictly follow your trading strategy. The FOMO effect can often lead to big losses. Beware of that.

Pace yourself. If you’re doing really well one month and you’re taking a decent amount of money, don’t make the classic mistake of doubling trade amounts in the second month. Graduate your investments, always. This is the best way to build up a business mentality, and to protect your finances. Markets are notoriously volatile, don’t let your finances be the same. Always raise investment levels after careful consideration, and incrementally.

Cool down after a trade. If you have a great trade, relax and read the newspaper. If you have a bad trade, relax and read the newspaper. The best way to let emotions take over your strategy is to keep piling into new trades. This is to be avoided. Take it easy, and focus on each trade as being an individual matter, not an extension of the previous one. Markets are different each day, and what worked yesterday doesn’t have to work in the future. Each trade needs to be a well thought out trading decision, underpinned by macro-fundamentals, technical analysis, and risk management.

The ‘good day’ trap is our last one. This is where you have an exceptional run of good trades and it feels like everything is going rosy. If you’re lucky (and you’ve worked hard to research and analyse) you will see that continuing perhaps right to the end of the day. You may not. Whatever happens, don’t think a run of good trades means anything. There will always be things that are out of your control. Play each trade ‘as it lays’, and focus on making an overall profit. If this means backing off, that’s what you do. When traders experience a series of winning trades, they start to feel invincible in this game. Greed takes over the rational decision making, which often leads to high losses down the road (sometimes higher than the earlier profits made on the string of trade).

The psychology of trading is not as complex as it sounds. Focus on running your trading as a business, and bear in mind that you should always focus on having a clear and sensible stop loss amount, and you should be able to make it a lucrative career.

Delve inside your mind

How does psychology impact trading? Discover the factors that can influence financial decisions – personality, emotions and moods, biases and social pressures – and hear from experts and traders about the challenges psychology can create.

Click on a factor to explore.

Personality

Personality is the combination of characteristics that make up each trader’s distinct identity. The features of a trader’s personality will predispose them to certain financial behaviours, determine how they will perform and their susceptibility to other psychological influences. Take a look at five key areas of personality: discipline, decisiveness, patience, rationality and confidence.

Social pressures

Social pressures are external factors that can have a direct influence on a trader’s psychology, encouraging them to change their attitudes, values and behaviours. The social pressure to perform in a certain way can cause errors and lead to traders taking on greater amounts of risk. Discover the impact of herding, rumours, news and competition on trader’s behaviour.

Behavioural biases

Behavioural biases are subconscious but systematic ways of thinking that can occur when the brain makes a mental shortcut. Biases can impact the way traders make and implement decisions. Discover six biases that can influence traders: availability bias, anchoring bias, hindsight bias, confirmation bias, loss aversion bias and gambler’s fallacy.

Emotions and moods

Emotions are chemical changes in the nervous system that cause an instant reaction to an event, while moods are a by-product of our emotions that can last for a lot longer. The emotional state of a trader can have a significant influence over the way they react to certain circumstances and triggers. Explore the psychology of fear, greed, hope, frustration and boredom, and the impact they can have on a trader’s performance.

Rationality

What is ‘rationality’ in trading?

Rationality in trading is the ability to make choices that will result in the best possible outcome given the information available. Rational decisions aim to maximise an advantage, while minimising any losses.

Although rationality is all about seeking the optimal outcome, studies have been quick to point out that this doesn’t always mean making money – a rational decision can involve minimising losses and even accepting a loss.1

How can traders become rational?

A common way to improve rational decision-making is through a demo account, which enables you to practise trading and test your strategy without risking any capital.

A demo account can help you to familiarise yourself with market dynamics so that when you start to trade using your own money, you won’t be overwhelmed by feelings of fear – enabling you to trade in a more rational way.

Things to keep in mind.

Fear can cause traders to close positions too early and miss out on profit.

Gambler’s Fallacy

Gamblers’ fallacy can lead to traders basing their decisions on irrational beliefs.

Herding

Herding can lead to traders making decisions out of a fear of missing out.

Decisiveness

What does ‘decisiveness’ mean in trading?

Decisiveness in trading is the ability to identify opportunities and act efficiently – this includes making decisions about when to enter and exit trades, assimilating new information into a plan and learning from mistakes.

According IG’s survey, 27% of investors ‘go with their gut’ when making decisions about money. However, research by Gollwitzer showed that ill-informed decisions can lead to excessive risk, because they cause a disparity between a plan and its execution1. Although it is important to act quickly, it is also important to make sure you have taken all the available information into account to give yourself the best chance of making rational decisions.

How can traders become decisive?

The best way to become decisive is to create a suitable trading strategy that outlines what you will need to see in your technical and fundamental analysis before you open a trade. This enables you to identify suitable entry and exit points before you start trading and ensures that your decisions have a solid foundation in historical data and trends, rather than ‘gut feeling’.

If you focus on technical analysis, you’ll use indicators to study signals and trends. The data they give off is then used to establish entry and exit points, and where to place stops and limits. Popular technical analysis tools include Fibonacci retracements, moving averages and Bollinger bands. If you choose to use fundamental analysis you’ll evaluate macroeconomic data, company financial reports and the news to establish how and when to trade.

If you aren’t confident in your ability to stick to your pre-made decisions, you could consider automating your trading strategy. This is where you would set the parameters of your order and allow an algorithm to analyse the market and respond to opportunities as they arise.

Things to keep in mind.

Fear can cause traders to close positions too early and miss out on profit.

Availability Bias

Availability bias can cause traders to act on information that is more accessible than reliable.

Herding

Herding can lead to traders making decisions out of a fear of missing out.

Confidence

What is confidence in trading?

Confidence in trading is trust in one’s own abilities and knowledge. Every trader requires a certain level of confidence so that they can identify and act on opportunities, as well as bounce back after a losing streak.

IG’s survey found that investors and traders had higher levels of confidence when it comes to financial decision-making than non-investors. However, there is a difference between confidence and over-confidence, which is an unrealistic view of one’s abilities. Research by Dorn and Huberman found that, of the 1345 German investors they surveyed, those who considered themselves more knowledgeable than average were actually more prone to excessively buy and sell assets1. This habit can lead to further losses and decisions that are based on fear rather than research.

All traders will experience losses, but a confident trader will know that everyone has bad days and that sets them apart is learning how to minimise these losses.

How can traders become confident?

The best way to become a confident trader is by trading using a demo account, which enables you to test your trading strategy in a risk-free environment using virtual funds. Alternatively, you could opt to backtest your trading strategy by taking a chunk of real data from a selection of markets and running your strategy against it.

Both methods enable you to build up confidence in how your strategy would perform, without using any actual capital. However, it’s important to remember that neither provides a perfect reflection of a live market, as they won’t always take factors such as liquidity into account when executing your trades.

To avoid being overconfident, just remember that there is never an end to how much you can learn and the experience you can develop. Even the most successful traders can learn more and develop their strategy further.

Things to keep in mind.

Decisiveness

Poor decision-making can lead to traders taking on excessive risk.

Rumours

Rumours often cause individuals to trade based on unreliable information.

Loss Aversion Bias

Loss aversion bias can cause traders to let losses run, potentially eroding profits.

Patience

What is ‘patience’ in trading?

Patience is the ability of a trader to wait for signals that indicate that it is time to enter or exit the market. This could include making decisions that delay instant gratification in the hope of a future benefit.

IG’s survey found that 66% of participants trade or invest as they recognise it will provide a better return than cash savings. But if a trader doesn’t have the discipline to stick to their trading plan and the patience to wait for the correct market conditions, it can have a huge impact on their long-term goals.

A study by Freeman-Shor found that only 21% of the stock investments analysed realised a return of over 100%, even though many of the shares went up by significantly more over time1. This was because very few individuals had the patience to wait for the trend to run, preferring to sell for a much smaller profit than risk losing what they had made.

Although it is unreasonable for traders to expect huge returns from every trade, it is important not to ‘snatch profits’ in small amounts out of fear or loss aversion . Although this might give a sense of instant gratification, there is the risk of losing out on a much larger gain.

How can traders become patient?

To develop patience, it is important to understand that your desired market movement might not happen straight away or at all. Building a suitable risk management strategy is a great way of managing impatience – this should include setting stop-losses and limit orders.

For example, a trailing stop-loss will automatically follow your position by a certain amount of points. This enables you to lock in your profit if the market moves in your favour, but it will remain in place if the market falls – closing out your position if the market moves against you.

Things to keep in mind.

The Art of Execution: How the World’s Best Investors Get It Wrong and Still Make Millions, Lee Freeman-Shor (2020)

Greed

Greed can lead to irrational decisions in the pursuit of excessive gains.

Gambler’s Fallacy

Gamblers’ fallacy can lead to traders basing their decisions on irrational beliefs.

Herding

Herding can lead to traders making decisions out of a fear of missing out.

Discipline

What does ‘discipline’ mean in trading?

Discipline in trading is the practice of sticking to strategies, avoiding holding onto losing trades and taking profit at the right time. It is an attribute that regulates attention, emotional responses and decision making .

Without discipline, traders risk letting their emotions cloud their judgement, which could lead to large losses. In fact, a study by Lock and Mann found that the median holding time for losses is over four times as long as the holding time for gains1, and this lack of discipline makes a trader less likely to be successful in the future.

How can traders become disciplined?

The best way to become disciplined is by creating a trading plan and outlining a risk-to-reward ratio – this compares the amount of money you are risking to the potential gain to your position. In theory, with the right ratio, you could lose more than you win, and still make a profit. For example, if your ratio was 1:3, you would only need to be successful on three out of ten trades to have an overall profit.

According to IG’s survey, only 55% of investors believe that they are disciplined and will stick to the rules they have outlined for themselves. By sticking to your trading plan and risk management measures, you can reduce the likelihood of being caught out by large losses.

Things to keep in mind.

Decisiveness

Poor decision-making can lead to traders taking on excessive risk.

Anchoring bias

Anchoring bias can lead traders to rely on an initial piece of information.

Patience

Patience is vital to finding the best trading conditions.

Gambler’s fallacy

How can ‘gambler’s fallacy’ affect traders?

Gambler’s fallacy in trading is the tendency of an individual to think that a trade will go a certain way based on past events – even though there is no substantive evidence to support the trader’s thinking. The term originated from the inclination of gamblers to think that a bet might go a certain way based on previous results.

When applied to trading, a study by Rakesh found that 55% of investors who took part believed that a random event would occur again just because it had occurred in the past1. This could cause a trader to base a decision on previous analysis, even when the indicators which had worked for them in the past are no longer relevant or helpful given the current market movements.

How can traders prevent gambler’s fallacy?

You can minimise the risk of gambler’s fallacy affecting your trading by basing your decisions on up-to-date analysis and setting a clear risk-to-reward ratio – which compares the potential loss to the potential gain for each trade you open. This can help you to think clearly and assess each situation on its own merits, and will also minimise the effects of any losses on the overall value of your trading account.

An example of a risk-to-reward ratio would be if you placed a guaranteed stop on a trade, capping your maximum loss at £100, along with a limit giving you the potential to realise a £300 profit. In this scenario, the risk-to-reward ratio would be 1:3.

With a 1:3 ratio, you could generate a profit by only being right 30% of the time. This is because if you placed ten trades risking a maximum of £100 each, you would lose £700 from your seven losses, but you would make £900 from your three gains. Of course, if you’re taking on less risk for a greater potential reward, it’s likely the market will have to move further in your favour to reach your maximum profit, than it will to hit your maximum loss.

Things to keep in mind.

Confirmation Bias

Confirmation bias causes traders to disregard information that doesn’t match their beliefs.

Decisiveness

Poor decision-making can lead to traders taking on excessive risk.

Loss aversion bias

How does ‘loss aversion bias’ affect traders?

Loss aversion bias is a preference for avoiding losses over acquiring the equivalent gains. It implies that the fear of a loss is greater than the pleasure of a gain.

Research by Odean looked at 10,000 trading accounts held between 1987 to 1993, and found that individuals have a tendency to hold on to losing positions for a much longer period of time than winning trades, out of a fear of realising a loss.1

Percentage of trades closed at a gain and loss

IG data backs this up, showing that although traders close over 50% of trades at a gain, they lose significantly more on their losing trades than they make on their winning ones. This emphasises that instead of accepting a small loss, many traders will hold on to their positions and risk eroding their profits.2

How can traders prevent loss aversion bias?

A key step in preventing loss aversion bias is acknowledging that it exists. When you start to create a trading plan, it is important to consider how much you are willing to lose as well as how much you want to gain. And once you have established your trading plan, it is important that you have the discipline to stick to it to avoid taking unnecessary losses.

One way of doing this is by setting a suitable risk-to-reward ratio, which compares your capital at risk to the amount you stand to gain. For example, if you set a ratio of 1:3, then you’d only need to profit on three out of ten trades to have an overall profit. The correct risk-to-reward ratio could ensure that your gains are always at least as large as any potential losses, giving you the confidence to overcome loss aversion bias.

Things to keep in mind.

Discipline

Being undisciplined can cause traders to hold on to losses.

Herding

Herding can lead to traders making decisions out of a fear of missing out.

Gambler’s Fallacy

Gamblers’ fallacy can lead to traders basing their decisions on irrational beliefs.

Confirmation bias

How can ‘confirmation bias’ affect traders?

Confirmation bias is the tendency for traders to search for, and put greater weight behind, information that confirms their pre-existing beliefs or predictions. This could mean that a trader disregards negative news about an asset because they believe that the good outweighs the bad – even though this may not be the case.

Confirmation bias is linked to overconfidence, which can lead to poor decision-making and overtrading. A study by Park, Bin Gu, Kumar and Raghunathan found that traders with stronger confirmation bias are likely to exhibit greater levels of overconfidence and trade more frequently. This can lead to them obtaining lower profits because they might lose more often. IG’s survey revealed that 29% of traders and investors go with their gut when making decisions – a sure sign of overconfidence.

How can traders prevent confirmation bias?

Confirmation bias can be prevented by carrying out your own analysis – whether this is technical or fundamental – and trusting that it is correct, even if it clashes with earlier predictions or preconceptions.

Technical and fundamental analysis can be a great way for you to identify whether you should be buying or selling a particular asset – for example, overvalued stocks or undervalued stock. Analysis can confirm the true value of an asset in a more accurate and definitive way when compared to say, preconceived biases or gut feelings.

It could even benefit you to actively seek out information that clashes with your preconceptions because this could counteract your confirmation bias – forcing you to think about each trade in terms of its own merits.

Things to keep in mind.

Confidence

Overconfidence can cause traders to have unrealistic views of their abilities.

Loss Aversion Bias

Loss aversion bias can cause traders to let losses run, potentially eroding profits.

Hindsight Bias

Hindsight bias can make traders falsely confident in their decisions after an outcome is known.

Hindsight bias

How does ‘hindsight bias’ affect traders?

Hindsight bias in trading is the tendency for individuals to express that they ‘knew it all along’, once they know the answer to a question or the outcome of an event that was previously uncertain.

The consequence of hindsight bias is that it often leads to a false sense of confidence . IG’s survey found that up to 55% of traders believe that they are very disciplined when trading – however, this is a dangerous mindset because biases can creep in and lead to irrational trading decisions.

A study by Biais and Weber found that those who exhibited the hindsight bias failed to remember how uncertain they had really been before they made their decisions. This means that they may have been inefficient in making choices regarding risk management. From the 85 investment bankers surveyed, all were found to exhibit hindsight bias.1

How can traders prevent hindsight bias?

One way to minimise the impact of hindsight bias is by keeping a trading diary. A trading diary is used to record your progress, keep track of your trading, and plan and refine your strategies. You should also use it to make a note of how you feel before, during and after each trade. By writing down whether you feel confident, afraid, hopeful or uncertain, you will be better placed to get a sense of when you were successful.

By mapping the reasons behind trading decisions and comparing them to the desired outcomes, you can use your past trades to inform your future strategy. So, instead of trying to make sense of what happened by oversimplifying the reasons for past events, you can learn from the outcome.

Things to keep in mind.

Discipline

Being undisciplined can cause traders to hold on to losses.

Rationality

Rational decision-making is key to minimising losses.

Confidence

Overconfidence can cause traders to have unrealistic views of their abilities.

Anchoring bias

What is anchoring bias in trading?

Anchoring bias is the tendency for traders to allow an initial piece of information to have a disproportionate influence on future decisions, regardless of its relevance.1

For example, research by Kaustia, Alho and Puttonen showed that individual’s estimates of stock returns were significantly influenced by the starting value they were given – the ‘anchor’2. When participants were given a high historical stock return they were more likely to estimate that the future return would also be high, while a group given a lower initial value had far lower estimates.

Anchoring bias can have dangerous consequences in trading, as it might mean that a trader holds on to an asset far longer than they should do, or that they make an inaccurate assessment of an asset’s worth based on the anchor value.

How can traders prevent anchoring bias?

The best way to prevent anchoring bias in trading is by performing comprehensive research and analysis of the market to identify your own anchor.

IG’s study showed that only 28% of traders and investors used personal experience as a source of information. But by doing your own analysis of macroeconomic trends and historical data, you will be better placed to identify key support and resistance levels. It is important to have confidence in your own plan before you look at someone else’s estimates – whether this is an analyst or fellow trader.

Things to keep in mind.

Availability Bias

Availability bias can cause traders to act on information that is more accessible than reliable.

Hope can make it hard for traders to cut their losses and lead to unnecessary risks.

Competition

Competition can cause traders to adopt problematic habits.

Availability bias

How does ‘availability bias’ affect traders?

Availability bias is the tendency to open or close positions based on information that is easily available, rather than sources that are more difficult to find. It can cause traders to act on false or unverified information, which can lead to higher levels of risk and loss.

Traders tend to lean towards what is personally most relevant, recent or emotional, even long after the event is over. The mind can take a shortcut based on examples that come to mind immediately, rather than on research and analysis. For example, if a person has a family member who recently lost money on a bitcoin trade, they may be less inclined to speculate on the cryptocurrency because it is hard for them to imagine that the market can be profitable.

In fact, a study by Moradia, Meshkib and Mostafaei found that there is a strong correlation between judgement and data availability. By surveying investors of stocks listed on the Tehran Stock Exchange, the researchers concluded that decision-making would likely improve as the amount of information released to the public increased.1

How can traders prevent availability bias?

The most common way to prevent availability bias is to conduct extensive research and analysis. Participants of IG’s survey were comfortable using multiple sources to gather information on trading and investing. Although 56% used the internet, some also used newspapers, specialist publications, financial advisers, television and podcasts.

Fundamental analysis is used to examine internal and external factors such as earnings reports, how the sector is performing, and the health of the economy, while technical analysis looks at historic price data and indicators to establish key entry and exit levels for each trade.

If you don’t feel confident enough to trade on live markets, you could test your strategy on a demo account first. This enables you to practise trading with indicators and test your strategy in a risk-free environment using virtual funds.

Things to keep in mind.

Fear can cause traders to close positions too early and miss out on profit.

Decisiveness

Poor decision-making can lead to traders taking on excessive risk.

Trading psychology

Steve Ira Present, M.S. has a Masters Degree In Clinical Psychology and 27 years of experience consulting with clients. For the past 10 years, he has specialized primarily in helping traders overcome serious trading psychology challenges. Steve is the author of an upcoming trading psychology book titled: “How To Save Your Trading Career By Deleting The “Mind Junk” In Your Subconscious Mind That Is Ruining Your Trading Results”

Trading Psychology Specialist Can
Help You Save Your Trading Career

The 3 Steps That Can Crush Fear, Stop Missed Trades,
Stop Over-Trading, Impulse Trading, and Revenge Trading, While Installing Iron Clad Discipline.

Documented Case Studies Of Traders
Overcoming Serious Trading Psychology Challenges

“No matter what CD’s I listened to, no matter how many books I read, no matter how much I won on the simulator, as soon as I switched to real money, I would lose. I lost money for the most agonizing year and a half of my life.

Now, after going through Steve’s process, I am a consistently winning trader. I don’t have sweaty palms, I don’t take my losses personally, I am not afraid of what the market may do to me. “ Ray Burke, Futures Trader, Colorado*,

My confidence had been shattered, because of the pain of losing so much. My experience with Steve and Steve’s approach has been nothing short of phenomenal.

Without Steve, I can honestly say, I don’t know if I would be trading stocks, futures, and options today.” Scott Maher, Hedge Fund Manager, Walnut Creek, California *

After a loss, I would revenge trade, trying to beat the stock. After working with Steve, I was very relaxed. I was not revenge trading anymore. I would ride out my winners, not taking quick profits anymore, and I would clip my losers short. Trading is enjoyable again.” Mark, Equities Trader, New Jersey *

I was out of control. I could not stop myself, my emotions were getting in the way. Now, I don’t rush into trades anymore, I wait for the right setup. I’m on a new level of trading because of Steve.” Hyati Camlica, Futures Trader, Long Island, New York *

* Results not typical, you can do worse, you can do better.

Here Are The 3 Steps That Can Turn Your Trading Around

In my upcoming book, based on 10 years of specializing in helping traders with serious trading psychology challenges, I explain this fact:

There are 3 major steps to turning a trading career around.

STEP 1: F or the sake of your trading career, PLEASE wake up and face the cold, hard truth:

If a trader is over trading, trading impulsively, revenge trading, missing trade after trade, hesitating, chasing the market, entering late, taking premature profits, moving his stops too close to the market, or too far away from the market, breaking his rules, or blowing up accounts, then.

Change is immediately required.
In order to get results, you must.

stop wasting time with well meaning but ineffective self-improvement methods that are not working.

You must stop promising yourself that “Today will be the day I turn my trading around”.

Yes, positive thinking is good. However, after weeks, months or years of positive thinking without consistent results, it’s time to realize that positive thinking is not enough.

If you are not seeing dramatic improvements in your trading, I recommend that you stop wasting your time with affirmations, audios, self-hypnosis, law of attraction, EFT, TFT, and all other change methods that have not gotten you where you want to be (or at least, drastically change the trend of your trading results).

My experience has shown that while those methods are helpful for some issues, they are not the right tools for stubborn trading psychology challenges.

STEP 2: Learn and accept this key fact: If you already know how to trade and have a method that gives you an edge in the market, and yet you are still struggling, the root cause of your challenges is this:

Certain “programs” in your subconsciou s mind are
ruining your ability to trade your method and
take the profits the market offers you.

These programs destroy your trading performance much like a virus destroys the performance of your computer.

These performance destroying programs in your subconscious mind include:

* “I’m a winner. I will NOT walk away after losing. Only wussies step aside when the going gets tough. I will fight until I clearly win, or clearly lose”

This program, which helped you greatly in your life before trading, now leads to blown up accounts, severe losses, and outbursts of emotional and out of control trading.

This program literally forces you to keep trading when you know you should get up and walk away. This program of “I will not walk away after losing” will continue to destroy your account until it is identified and deleted. Which is when you can finally start trading with consistency and control.

* “I hate losing, it makes me feel out of control, and I take it personally”

If you have this “hatred of losing” program, and you also have a program to avoid confrontation with forces greater than your own, this program will force you to hesitate. it may actually totally paralyze your ability to enter the market.

This program, and related programs, may be forcing you to MISS 80%-90% of high probability trades that your method offers you.

This program is VERY strong. It will easily overpower and crush willpower, promises, affirmations, NLP, hypnosis, and most other methods that traders attempt. The trader will struggle until this program is deleted.

* Many more profit destroying programs are listed and explained below .

Like the most dangerous part of an iceberg, these subconscious mind programs remain hidden beneath the surface.

While these programs lurking under the surface are hidden to your conscious mind, when you crash into the iceberg of negative subconscious programing, the jolting damage done to your account is quite visible:

You lose money, suffer wild swings in your account balance, and/or blow up your trading accounts, even though you have a winning method!

These subconscious mind programs are many, many times
more powerful than willpower or discipline.


While No successful man or woman wants to admit that his willpower and discipline can NOT overpower a problem, if you want to save your trading career, then you must accept this fact:

Your subconscious mind is so powerful it will
consistently overpower discipline and willpower
as easily as a tiger will devour a mouse.

You must face the fact that discipline and willpower are NOT the right tools for stubborn problems that fail to improve.

Which leads to 2 very important trading rules: (More key trading rules are explained in detail during my webinar, which you can download at the end of this page.)

* Positive thinking -at the expense of accuracy – will DESTROY your trading career!

* Accurate thinking (paying detailed attention to actual results, not wishful thinking) will SAVE your trading career!

Please, write (or type) those 2 rules down, now. And please review them every day, or at least, weekly!

Here is how the rule of accurate thinking can help you:

If the tools of discipline, willpower, positive thinking, wishing, new trading methods or systems, and all sorts of self help methods have not yet helped you change your trading psychology and improve your trading results, then STOP RELYING ON WHAT DOESN’T WORK.

Find what does work. And then do it. Which leads to.

STEP 3: This is the most important step to turning your trading around.

The subconscious programs that are the root cause of your trading psychology challenges must be deleted and replaced. (Just like a virus in your computer must be deleted to restore peak performance.)

Deleting these profit destroying programs is the “secret sauce” that helps save trading careers when other attempts have failed.

Below is a much shortened list of the subconscious programs
that control your trading psychology, which controls your trading performance.
(Of course, in addition to these programs, each trader has
their own unique programs based on their unique life experiences.)

PLEASE, FOR THE SAKE OF YOUR TRADING CAREER, GRAB A PEN AND PAPER, or open a document and keep track of the programs below that are hurting your trading performance.

P ROFIT DESTROYING PROGRAM (while I mentioned this particular program above, here I explain in in more detail, while explaining what new program I recommend to replace it to create consistent, disciplined trading)

“I can not walk away from a loss, so I must keep fighting (trading), to prove I am a winner. Only wussies step aside when things and avoid a fight. Winners hang in there and keep pushing forward.”

This program helped you succeed in life before you started trading. Yet, the rules to consistently win in trading are VERY different from the rules of winning in business or in your career.

If you stubbornly persist in using the wrong rules and the wrong tools, then your trading account and your trading career will suffer! In trading, this program forces you to keep trading when you know you should stop and walk away!

This program makes you blow up your trading account. It makes you suffer serious drawdowns. This program makes you cycle between controlled disciplined trading and outbursts of emotional, out of control trading.

This “I will not walk away as a loser” program is VERY strong. It will easily overpower and crush willpower, promises, affirmations, NLP, hypnosis, and most other methods that traders attempt.

Until this program is deleted, you will struggle. You may suffer from one or two bad days – or even 1 bad trade – that destroys the results of weeks of good trading!

The program makes you refuse to give in, even when you know it’s in your own best interest.

THE “I WILL NOT WALK AWAY AS A LOSER” PROGRAM
MUST BE REPLACED BY A NEW PROGRAM THAT GIVES YOU THE
MOST IMPORTANT SKILL IN TRADING. THIS NEW SKILL IS.

THE ABILITY TO DEEPLY ACCEPT LOSSES –
NOT JUST IN YOUR HEAD,
BUT AT THE EMOTIONAL LEVEL!

This new program lets you walk away as a temporary loser, in order to win big over the long term.

This new program lets you keep your ammunition stockpiled, so that you have a surplus, ready to fire for another day.

This new program lets you step aside for the moment, in total peace, feeling like a winner, even after the market stopped you out several times in a row.

You can not positive think your way into getting this powerful new program.

You can not simply tell yourself, “Stay calm after losing. In a series of trades, I know I will come out ahead”. Those well meaning efforts lack the knockout power to get the job done. Why?

Because the connection between losing, winning, and self esteem is programmed into us by parents, sports, teachers, and the media. This connection must be deleted, reprogrammed, and replaced, so that we can take losses, and not respond emotionally.

PROFIT DESTROYING PROGRAM: “Losing makes me feel bad about myself, it makes me feel like less of a man (or woman.)

If you have this program, and your subconscious mind likes to avoid confrontations, then your subconscious will protect you by making you sit on the sidelines and play it safe.

If you have this program and your subconscious mind is also programmed to fight back, then fight back you will: You will over trade, revenge trade, trade impulsively, and have those out of control days or trades where your account gets drained. fast.

Almost every man I work with has this program. This program must be deleted to allow your subconscious to accept the reality of the trading business: we will lose around 1 out 3 trades (give or take, depending on our method)

Trading can improve dramatically once this program (and its related programs) are deleted.

PROFIT DESTROYING PROGRAM: “I will only take risks (ie: enter trades) when I am upset, or angry, or frustrated.”

This program creates chasing. After you miss out on one good trade after another, you get so upset that your emotions take over. Then, you chase the market, frequently going long at the high tick, or getting short at the low tick!

PROFIT DESTROYING PROGRAM: “I remember (either consciously, or subconsciously) my prior trading losses.”

These losses may either be one or just a few giant losses, or many small losses. These memories, or to be more specific, the emotions related to these memories, must be deleted.

Once the emotions of the memories are deleted, you can clearly see and accurately interpret the hard right edge of the screen. You can pull the trigger without over thinking, hesitating, or agonizing over “should I take the trade, shouldn’t I, what if this changes, etc”. You can trade without the need for revenge, without the need to make up for prior losses.

PROFIT DESTROYING PROGRAM: “ I need to prove to myself and to all those who know about my trading that I can trade successfully. I NEED to perform well.”

This program’s focus on performance and results in trading will, paradoxically, destroy your trading results! This program creates pressure. One of the rules I explain in my upcoming book is this: The more pressure you feel, the worse your trading results will be.

PROFIT DESTROYING PROGRAM: “I’m not allowed to be HUGELY successful

Once this hidden subconscious program is deleted, your trading (and other aspects of your life) can dramatically improve.

PROFIT DESTROYING PROGRAM: “When I lose, I NEED to get whole. I need to get back my losses.”

This program forces you to trade your money, not your method. Which will dramatically hurt or totally destroy your ability to trade well.

PROFIT DESTROYING PROGRAM: “When I make a mistake (ie: lose), I feel bad. Like I did something wrong.”

This SHUTS DOWN your smart thinking, and often disables your ability to pull the trigger. Or it makes you trade impulsively, without control or discipline.

PROFIT DESTROYING PROGRAM: I feel embarrassed when I lose.

This creates the need to get revenge for losses . This program forces you to trade with emotion! Whereas.

Learning to trade without emotion is one
of the most important skills that any trader
MUST reprogram into their subconscious mind.

Based on my experience, trading without emotion (or with almost no emotion) is the only holy grail in trading. Because “90% win rate” methods are nothing more than a pipe dream.

PROFIT DESTROYING PROGRAM: “The (sometimes hidden) thoughts and belief that “I’m doomed, I’m a losing trader”

This becomes a self fulfilling prophecy that attracts more losses. This program must be deleted so you can trade your method, not your beliefs.

PROFIT DESTROYING PROGRAM: “Losing money is bad.”

While all of us have this program, this program MUST be deleted to trade well.

EACH OF THESE PROFIT DESTROYING PROGRAMS CAN BE FOUND AND DELETED.

How to delete the subconscious programs
that are sabotaging your trading and trading psychology…
so you can trade your method and
take the profits the market offers you
.

Over the past 27 years of consulting with clients who had very hard to solve problems, and during the past 10 years of specializing primarily in trading psychology challenges, I have developed a proprietary rapid deletion process.

My deletion process is designed to first identify and then delete and replace the subconscious programs that are destroying your trading performance.

So that you can breakthrough to new levels of trading success. By the way…

My method is NOT hypnosis, not NLP, not EFT, TFT, not law of attraction,
not meditation, not journaling. While all…

of those methods are good for certain problems, I have not seen those methods get powerful results for trading psychology problems.

The Results my rapid deletion process gets are designed to be rapid and powerful. After I delete a subconscious program, my clients feel the difference, on the spot.

See how traders turned their trading around
by clicking the play button below:

SAVE YOUR TRADING CAREER
FREE Consultation, ONLY If You Qualify
:

Please understand this:

Because I do not and will not sell audios or work in groups with traders, my time is very limited. (In my experience, groups and audios do not work for stubborn trading psychology problems.)

I can offer free sessions only to those who meet the following qualifications:

    You know how to trade (no newbies)

You are NOT trading with Scared Money. Why? Because of these rules, taken from my upcoming book:

* Scared money always loses.

* Anything that adds pressure to your life or trading will dramatically subtract from your trading profits!

Making it as a trader must be one of your top priorities in life. (If you are not totally dedicated to making it as a trader, I can not help you.)

  • You must have actually traded real money in the market (even if you are in Sim mode for now because of your trading psychology issues).
  • Here’s What You Will Discover During Your FREE, No Obligation Phone Consultation:

      Why EVERY attempt to consistently follow your rules for a long period of time has failed, and what you can do to fix this problem

    Why other (good) methods like NLP, meditation, hypnosis, etc., fall short for trading psychology problems.

    The surprising reason that discipline can actually hurt a trader’s performance, and what my experience has shown works far better than discipline.

    How to find and delete the exact subconscious mind programs that are creating your trading problems.

  • How my method works. What results to expect, and when.
  • After Our Free Consultation, If You Decide You Want My Help,
    You Will Love The Results You Get In Your First Session,
    Or You Will Get Your Money Back, No Questions Asked.

    That’s how sure I am that my
    method will deliver results for you.

    I have stood behind my work with this unconditional money back guarantee for traders for the past 10 years.

    Also, your consultation will be fast moving, filled with learnings. And of course, I personally promise there will be Zero pressure.

    By the end of our consultation, you will feel inspired, hopeful, and ready to get back on track with your trading.

    If You Meet The 4 Qualifications Above, Set Up Your
    “SAVE YOUR TRADING CAREER CONSULTATION”
    For FREE By Calling Me at 1 (305) 662-6800
    OR
    EMAIL ME HERE

    I work with my clients over the phone.

    So no matter where you live, if you are serious about improving your trading, already know how to trade, and are not trading with scared money, then you can get help, and you can get it now.

    I look forward to helping you overcome your trading psychology challenges and take the profits your method offers you.

    Take care,

    Steve Ira Present
    1 (305) 662-6800
    Email contact

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