Avoid "Psychological Traps" in Trading: 3 Basic Mistakes That New Traders Often Make
In the world of financial trading, psychology is an important factor that determines a trader's success or failure. Here are three common mental mistakes new traders often make and how to avoid them.
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| Psychological traps in trading |
1. FOMO (Fear Of Missing Out)
- Fear Of Missing Out Syndrome
What is FOMO? FOMO stands for Fear Of Missing Out, meaning the fear of missing out on an opportunity to make money. This syndrome often comes from psychology when traders see other people making profits on social networks or when the market has strong fluctuations, making them feel like they are missing out on important opportunities.
Impact of FOMO:
Opening positions outside of the plan: Traders can easily get caught up in opening trading positions outside of the original strategy just for fear of missing out on opportunities.
Trading without analysis: They may decide to trade without analyzing the signals properly, just because they believe the trend will continue.
Losses: FOMO often leads to entering into trades that have almost no chance of being profitable, leading to heavy losses.
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| FOMO - Fear of Missing Out Syndrome |
Solutions to avoid FOMO:
Assuming an opportunity is just one of many: Understand that each opportunity is just one of hundreds more in the future and there is no need to keep up with every trend.
Focus on your own strategy: Maintain focus on your watchlist and trading strategy, avoid being tempted by external factors.
Discipline and patience: Set trading rules and strictly follow them. Wait for opportunities that suit your trading system.
2. Revenge Trading - Irrational Desire to Recoup Losses
What is revenge trading? Revenge trading is the act of traders trying to regain what they have lost by opening new positions on the same stocks or markets that caused them to lose money.
Impact of revenge trading:
Emotions dominate: Traders are dominated by emotions, wanting to prove that they are right and can beat the market.
Losing new opportunities: They may ignore other better profitable opportunities just because they want to recover losses from old transactions.
Heavier losses: Revenge trading often results in heavier losses when trying to undo failed trades.
Solutions to avoid revenge trading:
Ignore personal losses: Look at each losing trade as a lesson and don't let it influence your next trading decision.
Follow the system: Always follow the established trading system, do not trade based on emotions.
Diversify opportunities: Find and exploit other trading opportunities instead of trying to stick to a stock or market that has made you lose money.
Risk management: Set position size and manage risk appropriately so that each trade is only a small part of the overall strategy.
3. The Gambler's Delusion - Misunderstanding of the Independence of Chances
What is the gambler's illusion? This is a psychological phenomenon that causes traders to believe they can predict the outcome of a trade based on previous events, when in reality each trade is unique and independent.
Examples of gamblers' delusions:
Roulette: A classic example is the game roulette, when the ball falls into the black box consecutively, the player believes that the next spin the ball will fall into the red box. In fact, each shot is an independent event.
Impact of this illusion:
Wrong prediction: Traders may rely on previous random events to make trading decisions, leading to erroneous predictions.
Losses: Predictions based on this illusion often lead to losses because there is no logical basis.
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| The Gambler's Delusion |
Solutions to avoid gamblers' illusions:
Understand transaction independence: Realize that each transaction is an independent event and is not affected by previous transactions.
Thorough analysis: Rely on technical and fundamental analysis to make trading decisions, not on feelings or random events.
Discipline and logic: Maintain discipline in trading and apply logic to make decisions based on real data.
Conclude
To become a successful trader, psychological management is extremely important. Avoiding psychological traps like FOMO, revenge trading, and gamblers' delusions will help you maintain discipline, stick to your trading strategy, and maximize profits. Focus on your long-term goals, manage risk intelligently, and always maintain discipline in every trading decision. This will help you overcome challenges and achieve sustainable success in the financial markets.
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