Psychology

Mental aspects and behavioral patterns in trading.

12 terms in this category

A

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

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.

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.

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.

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

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.

Trading Discipline

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