In daily trading, many people (especially those who have just entered the market) tend to pay more attention to the learning of some technical indicators or trading strategies. In fact, for a large number of people, the main reason for losing money in trading is not the existence of problems in technology or trading system, but these people unwittingly fell into some psychological traps.

Here are five common psychological traps that traders can fall into, avoid, and believe that your trading will do more with less. That's what he often tells investors.

Confirmation bias

Confirmation bias, also known as confirmatory bias, is the tendency of most people to selectively recall and gather favorable details and ignore unfavorable or contradictory information to support their existing beliefs.

Investors with this cognitive bias are more likely to collect confirmatory evidence than to evaluate all available information when making decisions. For example, when a trader is ready to buy an asset, he or she sometimes comes to an early conclusion, then tries to find information that supports his or her view, and naturally ignores information that contradicts his or her view.

Severe cases, when trading losses will still refuse to accept the facts, but still frantically search for all possible evidence to support their views. This cognitive bias is very common in our daily trading, especially for beginners, for example, when you are very bullish and decide to go long gold, you can always find various reasons to convince yourself.

Confirmation bias can be more damaging when investors hold a priori view. If the information does not objectively reflect the full picture of the transaction and falls into confirmation bias, then it can only reinforce a priori view. In this sense, we want information to be unbiased.

Gambler's fallacy

The gambler's fallacy is the mistaken belief that if something happens more often than normal over a certain period of time, then it will happen less often in the future (and vice versa).

In investing, the gambler's fallacy means that a trader who has experienced several consecutive losses mistakenly believes that the next trade has a higher chance of winning. If the outcome of each trade is independent, then the winning percentage of the next trade has nothing to do with the previous consecutive losses (or consecutive profits).

In this case, the right approach is still to stick with the strategy, rather than to intervene based on a false overestimation of the odds. In daily trading, many people will have this kind of psychology. When you lose money on consecutive long or short trades, your next trade subconsciously tends to go in the opposite direction.

Herd effect

People like to follow the crowd because groups have a self-reinforcing mechanism, if a certain idea is repeated in a group, the members of the group will gradually accept the idea.

Herding happens every day in the market. Because of information asymmetry, investors infer their own private information by observing the behavior of the majority, or over-rely on public opinion and imitate others' decisions.

The most important factor influencing conformity is not the correctness of the information itself but the number of people who agree with the information.

Individual irrationality leads to collective irrationality. Herding behavior refers to individuals acting in the same way as others, regardless of private information. Many of the small white who just entered the market like to listen to some analysts call out, in fact, it is the embodiment of the herd effect in the market.

Some of the more well-known analysts or big V in the market are often the people who lead the herd, because ordinary investors have less information, when they see more people choose to believe them, the rest of the people will follow the footsteps of the masses.

For example, the Federal Reserve cut interest rates, in fact, there is a herd effect, first a group of people out to bring the rhythm, and then more and more people believe that the Federal Reserve must cut interest rates. But the Fed doesn't really need to cut rates that badly.

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Recent deviation

The recent bias is that people are more likely to recall and infer recent events and believe that the same situation will continue indefinitely into the future. This happens all the time in investing.

Humans have short memories in general, and they are especially short when it comes to investment cycles.

During bull markets, people tend to forget about bear markets. There will be a knee-jerk assumption that the market should continue to rise because it has been rising recently. So investors continue to buy stocks, feeling good about their prospects.

Investors have increased risk taking and may not consider diversification or prudence in portfolio management. Then, after a bear market hits, instead of minimizing losses on their portfolios, investors watch their net worth plummet, and then sell when the market turns down.

Selective perception bias

Selective perception refers to the tendency of people to ignore or quickly forget factors that make us feel unpleasant or contrary to our beliefs. To put it crudely, selective perception bias is what we usually call "seeing things through colored glasses."

For traders, selective perception bias is very dangerous. Because most traders fear the pain caused by losses, they often justify themselves when faced with losses. This makes it very easy for traders to overlook their own mistakes in trading decisions and instead look for some irrelevant excuses.

When the market is good, almost everyone makes money, and people with selective perception bias will mistake the risk return of the market for an extra return because of their own ability to produce.

When the market is not good, most people have lost money, and people with this deviation often do not see their own problems, thinking that the loss is only the market is not good.

A good trader does not blame the market, the environment, or any external factors; the trader must take responsibility for the results of his trading.