Monday, August 12, 2019

Three Common Psychological Trading Mistakes

1. The Fear of Missing Out (FOMO)

This one can cause you to 1) Take every single trade you see, even if it's not the strongest set up; and 2) You will oversize your positions. 

2. Revenge Trading

After a trading loss, this trader will throw out the rules and take on crazy trades to make back the loss. Remember, every trader has losses. Keep them small and follow your trade rules and be consistent. 

Helpful hint: Trade smaller position sizes for a while. Focus on the long-term.

3. Gambler's Fallacy

The Gambler's Fallacy is the belief that the chances of something happening with a fixed probability become higher or lower as the process is repeated. People who commit the Gambler's Fallacy believe that past events affect the probability of something happening in the future.

For example, if you flip a coin 10 times and heads comes up the first five flips, if you think that the odds for the sixth flip favors tails, you have succumbed to Gambler's Fallacy. The odds for the sixth flip actually is 50/50 heads/tails. It does not change based on the first five flips. 

Watch the video here.

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