Frequently Asked Questions

• How do you be emotionless while trading?

  While it’s impossible to completely eliminate emotion from human thinking, there are ways to limit irrational thinking while trading. The key is to understand the cognitive biases that humans have and adjust your be🦹havior accordingly. In addition, don’t deviate from investing plans you’ve made in advance just because of a downswing in the market, as you’re likely to react t🔴oo strongly out of fear.

  Learn More: How to Avoid Emotional Investing
• What is trading psychology?

  Trading psychology is the application of the field of psychology to financial trading. Doin♊g so allows you to understand the ways in which humans react to financial markets in ways that follow human biases. This can help understand how the market works the way it does as well as minimize these in your own trading. The relationship between finance and psychology is explored in the field of behavioral finance.

  Learn More: An Introduction to Behavioral Finance
• What cognitive biases undermine traders?

  While virtually any cognitive bias or other psychological pitfall can hurt trading, two of the most common are confirmation bias and the sunk costꦜ fallacy. Confirmation bias is when you give more weight to data that confirms what you already believe while giving less to info that proves you wrong. It’s critical to try and work extra hard to evaluate and take onboard data that disproved your ideas, as your first instinct will usually be to discount it. The sunk cost fallacy is the idea that previous losses or costs should contribute to your decision, making when nothing you can do will get them back, and so you should only make trading decisions based on their effect on the future. For example, if you’ve invested a lot in a business that turns out to have a bad business model, you should act as if you were looking at it as a fresh investment without regard for money you’ve lost previously.

  Learn More: 8 Psychological Traps Investors Should Avoid