What are the emotional biases of human traders?

Human traders are subject to various emotional biases that can affect their decision-making abilities when trading. Here are some common emotional biases:

Overconfidence Bias: occurs when traders are overly confident in their trading abilities, leading them to take unnecessary risks or ignore important information.

Loss Aversion Bias: this bias happens when traders feel the pain of losses more acutely than the pleasure of gains, leading them to hold on to losing positions for too long or exit profitable positions too quickly.

Confirmation Bias: many traders only seek out information that confirms their existing beliefs or biases, while ignoring information that contradicts them.

Anchoring Bias: this bias occurs when traders fixate on a particular price or piece of information, even if it is no longer relevant, and base their trading decisions on that anchor.

Herding Bias: sometimes traders follow the actions of others in the market, even if those actions go against their own better judgment.

Availability Bias: happen when traders rely too heavily on recent or easily accessible information, rather than taking a broader view of the market.

These emotional biases can lead to irrational decision-making and ultimately hurt traders’ performance in the market.

It’s essential for traders to be aware of these biases and work to mitigate their impact on their trading decisions!