Psychology

Mental aspects and behavioral patterns in trading.

23 terms in this category

A

Analysis Paralysis

Analysis paralysis is the inability to execute a valid trade setup because fear-driven over-research produces conflicting signals that delay action until the opportunity is gone.

Anchoring Bias

Anchoring bias is the tendency to rely too heavily on the first piece of information encountered, like an entry price, when making decisions.

C

Cognitive Dissonance

Cognitive dissonance is the psychological discomfort traders feel when new market evidence conflicts with their existing trade thesis, causing rationalization over honest reassessment.

Confirmation Bias

Confirmation bias is the tendency to favor information that confirms existing beliefs while ignoring contradictory evidence, leading to poor trading decisions.

F

Fear and Greed Index

Fear and Greed Index measures market sentiment on a scale from extreme fear to extreme greed, used as a contrarian indicator for timing.

FOMO

Fear Of Missing Out (FOMO) is an emotional state that drives traders to enter positions impulsively when seeing others profit, often at unfavorable prices.

G

Gambler's Fallacy

Gambler's Fallacy is the mistaken belief that past independent outcomes influence future ones — causing traders to oversize after losing streaks expecting a reversal.

H

Hindsight Bias

Hindsight bias is the belief, after an outcome occurs, that it was predictable all along — corrupting post-trade analysis and inflating perceived win rates.

L

Loss Aversion

Loss aversion is the psychological tendency where losses feel twice as painful as equivalent gains feel pleasurable, causing traders to hold losers too long.

M

Mental Accounting Bias in Trading

Mental accounting bias is the tendency to treat money differently based on its source — causing traders to risk profits recklessly while protecting original capital.

O

Overconfidence Bias

Overconfidence bias is an inflated belief in one's trading abilities, often leading to excessive risk-taking and underestimating potential losses.

Overtrading

Overtrading is excessive trading beyond what a strategy requires, often driven by boredom, FOMO, or the desire to recover losses.

P

Process vs Outcome Thinking in Trading

Process vs outcome thinking is the discipline of judging trades on rule adherence and execution quality, not profit or loss, to separate skill from variance.

R

Recency Bias

Recency bias is the tendency to overweight recent events when making decisions, causing traders to extrapolate short-term trends into the future.

Revenge Trading

Revenge trading is impulsive trading after a loss, attempting to recover money quickly through larger positions or more trades, usually resulting in bigger losses.

S

Self-Attribution Bias in Trading

Self-Attribution Bias is the tendency to credit personal skill for winning trades and blame external factors for losses, inflating perceived edge and blocking real learning.

Sunk Cost Fallacy

Sunk cost fallacy is the irrational tendency to hold losing positions because of past investment, rather than evaluating current probability of recovery.

T

Tilt

Tilt is an emotional state where frustration or anger impairs trading judgment, leading to irrational decisions and deviation from the trading plan.

Trader Burnout

Trader burnout is a state of chronic mental and emotional exhaustion caused by prolonged exposure to financial risk, screen time, and performance pressure.

Trading Anxiety

Trading anxiety is excessive stress or hesitation around entering, managing, or exiting trades, caused by loss aversion, oversized positions, or unclear trading rules.

Trading Discipline

Trading discipline is the ability to consistently follow a trading plan and rules, managing emotions and avoiding impulsive decisions.

Trading Mindset: Developing a Professional Approach

Trading mindset is the repeatable mental framework governing decision-making under uncertainty, separating rule-adherent professionals from emotion-driven retail traders.

Trading Psychology

Trading psychology is the study of how emotions, biases, and mental states distort trading decisions, causing behavioral failures that research links to the majority of retail losses.