5 Psychological Biases Holding Back Your Trading Potential

Trading successfully requires you to overcome innate psychological biases wired into your brains. These mental shortcuts impact decision-making and often lead traders astray. By recognizing how certain biases influence reading behaviors, traders can make more rational choices and avoid costly mistakes. Let’s look at the top five most problematic psychological biases that could be sabotaging your trading results. 

1. Hindsight Bias

Hindsight bias refers to believing the fact that you could have predicted an outcome when, in reality, you could not. In future trading or any other form of trading, it leads to changing the systems or rules because of recent losses or missed opportunities. 

With hindsight bias, traders create new rules claiming they would help turn losses into wins based on new info that wasn’t available in the past. Tweaking rules based on your single observation is unwise. Only make changes after reviewing a large sample of at least thirty or so trades. To access past trading data, it’s essential to use a robust stock trading app, like mStock, that presents authentic trading data and insights into your trading behavior.

2. Gambler’s Fallacy

This is a psychological bias that leads people to believe past events influence future random outcomes. For example, believing that after flipping heads five times, tails are now “due .” But each toss is an independent event. Likewise, in trading, assuming you’re “due” for a gain after multiple losses is false. This is especially true for options trading. No matter how carefully a trader follows the NSE option chain live, any outcome is possible. Each trade is unique and separate. Winning probabilities don’t change based on previous results. 

3. Loss Aversion

Studies show, psychologically, losses hurt twice as much as gains feel good. Loss aversion makes traders hold onto losing trades too long, hoping to break even. Or they take profits too early, fearing losing gains. Both actions contradict logical trading plans. Avoid emotional decision-making by sticking to pre-defined rules for risk management when trading through a mutual fund app, like mStock. 

4. Confirmation Bias

Seeking only information that confirms pre-existing beliefs is confirmation bias. Traders that exhibit it may cling to trades despite contrary evidence. When in trade, they disproportionately focus on supporting versus contradicting data. This irrational approach leads to poor decisions and extra losses. Always weigh all relevant info objectively when analyzing your trades using data from your trading account. 

5. Ostrich Effect

In the ostrich effect, traders figuratively tend to bury their heads in the ground to ignore negative information when they are dead set to invest in equity of a particular company. Not closing trades as planned or avoiding looking at account balances are examples. But denying reality doesn’t change outcomes. Sticking to proven plans, even during difficult times, leads to consistency. Don’t deviate from rules in emotional moments. 

Overcome Your Biases

Defeating psychological biases requires awareness and discipline. A trading journal based on NSE India charts and past trading data raises self-awareness by resurfacing thoughts and emotions around trades. Review trading journals to identify destructive behaviors you may be unaware of. Discipline means resisting the urge to chase your trading instincts. Patience is key, as changing ingrained habits takes time. Focus on improving one aspect at a time. With increased awareness, discipline, and perseverance, you can break free of biases sabotaging your trading. 

The bottom line is that irrational mental shortcuts impact everyone. But by understanding how psychological biases influence your trading behaviors, you gain power over them. Identify your own tendencies, such as loss aversion or confirmation bias, using apps similar to mStock that track trading behavior. Then, implement tactics to neutralize biases, like journaling, sticking to plans, and rational thinking. Great traders aren’t immune from biases; they’ve learned how to overcome them.