Trading Psychology · Emotional control · Article 2 of 4
Common Trading Biases
Traders use the word bias in two ways. One kind works against you: thinking traps that distort your judgement. The other kind works for you: a clear, written view of where a market is heading, which keeps your decisions consistent.
CFDs are complex instruments and carry a high risk of losing money rapidly because of leverage. Make sure you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Five thinking traps
| Trap | What it looks like | What helps |
|---|---|---|
| Loss aversion | You hold losers too long because closing them hurts. Psychologists Daniel Kahneman and Amos Tversky found losses feel about twice as strong as equal gains. | Set your stop loss before you enter, and leave it there. |
| Overconfidence | After a few wins, you raise your size or skip your checks. | Keep the same risk per trade, win or lose. |
| Confirmation bias | You read only the news and views that agree with your trade. | Write down the case against every trade. |
| Recency bias | Your last few trades or the latest move feel like the whole story. | Judge your strategy over 30 trades or more, not five. |
| Anchoring bias | You fix on one price, such as your entry, and judge everything against it. | Ask where you'd place the trade today if you had no position. |
Write your market view before each session
A market view is a short note on which way you expect a market to move and what would change your mind. Writing it down before you trade stops you flipping between buying and selling as prices wiggle.
Keep it to three lines for each market:
- Direction: rising, falling or sideways, judged on a chart one step slower than the one you trade. If you trade the hourly chart, look at the four hour or daily chart.
- What I'll look for: buying setups if rising, selling setups if falling, nothing if sideways.
- What cancels it: the price level or event that would make the view wrong.
If a trade idea goes against your written view, skip it. If the cancel level breaks, stand aside and write a new view later. Your view isn't a forecast. It's a filter that keeps you on one side of the market at a time.
