Common Psychological Trading Mistakes to Avoid

As a trader, having control over your thoughts and emotions is crucial for success. However, there are common psychological trading mistakes that can hinder your progress. In this article, we will discuss the top three psychological trading mistakes and provide guidance on how to avoid them.

Trading on the Basis of Fear of Missing Out (FOMO)

One of the most common psychological trading blunders is trading on the basis of apprehension over missing out. Fear of missing out (FOMO) is when a trader is typically upbeat about each and every trade because "this trade could be the one." The trader feels that something about this trade looks so much better than all the others, so it has to be the one. If they miss this trade, there may not be an opportunity like this one for a while.

To avoid FOMO, it's essential to understand that missing trades is a part of the game, and it will happen. If you're struggling with the fear of missing out, refrain from using social media and chat rooms for a week or two. Instead, develop your own trading strategy and avoid relying solely on the trade ideas of others.

Vengeance Trading

Vengeance trading is a common psychological trading mistake. These are the traders who can blow up the entire trading account and lose all of their money after taking a loss. This may work once or twice, but if you keep this up, you'll get crossed that, and it's going to hurt. The market doesn't care about you or your money.

To avoid vengeance trading, it's crucial to have a grip on your emotions. Remember that to succeed in trading, you must have more winning trades than losing ones. If you trade out of rage or revenge, you will not make any money. If you're still having problems and you're sure your position sizing is in order, then you should consult a financial advisor.

The Gambler's Fallacy

The gambler's fallacy is a common misconception about probability that leads to poor trading decisions and, in some cases, compounding losses. This misconception extends beyond the trading world and is most commonly associated with gamblers.

To avoid the gambler's fallacy, it's important to understand that each event is independent and has no bearing on the next one. Don't believe that the coin knows that it recently fell on five heads in a row, therefore, it should land on tails. If you've lost money in five consecutive transactions, it makes no difference whether you raise the size of your position because you feel that your fortune will turn around shortly.

Conclusion

In conclusion, psychological trading mistakes can be costly for traders. To be a successful trader, you need to have control over your thoughts and emotions. By avoiding the common psychological trading mistakes discussed in this article, you can improve your trading performance and achieve success. Remember to develop your trading strategy, have a grip on your emotions, and avoid the gambler's fallacy.