Why Do You Always Lose? Top 10 Biases You Need to Overcome

Your biggest trading mistakes are not technical, but psychological errors. These biases have destroyed countless traders.

Avoid the following at all costs:

1. Anchoring Bias

Traders focus on a specific price (anchor), which can influence their decisions.

  • If Trader A entered the crypto market when BTC was $52,000, then $61,000 BTC might seem expensive.
  • If Trader B entered the market when BTC was $71,000, then $61,000 BTC might seem cheap.
Anchoring Bias

2. Recency Bias

This is the tendency to remember and value the most recent information more deeply.

Traders might carry information from recent trades into the next one, potentially leading to overconfidence and losses.

Recency Bias

3. Loss Aversion

Traders feel the pain of losses more intensely than the pleasure of gains.

The pain of losing $100 might be greater than the joy of earning $100.

This bias might lead traders to prematurely close profitable trades out of fear that gains will turn into losses.

Loss Aversion

4. Endowment Effect

When traders hold an asset, they tend to overestimate its value.

Emotional attachment makes it difficult to sell at a loss or even at a fair price, as they rely more on their expectations than on the market’s actual situation to judge the asset’s future price.

Endowment Effect

5. Herd Mentality

There are risks in blindly following the crowd or deliberately going against it.

Stick to your trading plan and avoid impulsive actions based on the crowd’s behavior.

Only consider the crowd’s behavior when performing an objective market sentiment analysis.

Herd Mentality

6. Availability Heuristic

Traders tend to give too much weight to the most emotionally intense or recent information.

For example, a recent market crash might make traders overly cautious, even if the market conditions have changed.

Availability Heuristic

7. Survivorship Bias

Systematically overestimating the probability of success.

We often see success stories, while stories of failure are forgotten.

Survivorship Bias

8. Framing Effect

The way information is presented affects decisions.

Traders’ emotions and confidence influence their risk assessment.

Positive emotions might lead to underestimating risks, while negative emotions might lead to overestimating risks.

Framing Effect

9. Confirmation Bias

Traders tend to look for data that supports their beliefs.

If you are bullish on an asset, you will seek out all the information that supports a bullish outlook, ignoring bearish data.

Confirmation Bias

10. Captain Hindsight

In hindsight, everything seems obvious.

After an event occurs, traders often feel they had foreseen the outcome.

This bias leads to overconfidence in predicting the future and unrealistic expectations of their trading abilities.

Captain Hindsight