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Biturai Trading Wiki
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Wishful Thinking in Trading: When Hope Replaces Analysis
Wishful thinking in trading occurs when a trader's personal desires or hopes for a specific outcome override objective market analysis and rational decision-making.
Anchoring at All-Time Highs: The Cognitive Trap of Past Peaks
Anchoring bias is a cognitive tendency where individuals rely too heavily on an initial piece of information, such as an all-time high, when making subsequent decisions.
Anchoring to the Entry Price: Why Your Purchase Price Can Trap You
Anchoring to the entry price is a cognitive bias where traders fixate on their initial purchase price, allowing it to disproportionately influence subsequent decisions.
Sunk Cost Fallacy vs. Commitment Bias: The Subtle Distinction
Understanding the difference between the sunk cost fallacy and commitment bias aids rational decision-making, particularly in financial trading.
The IKEA Effect: Overvaluing Self-Researched Cryptocurrencies
The IKEA effect describes a cognitive bias where individuals place a disproportionately higher value on products or ideas they have partially created or contributed to.
The Decoy Effect: How Bait Options Influence Trader Decisions
The Decoy Effect is a cognitive bias where a strategically inferior third option alters preference between two original choices.
Round Number Bias: The Psychological Impact of Whole Prices
Round number bias describes the human tendency to focus on and assign special significance to whole, round numbers in financial markets.
Money Illusion: Nominal Versus Real Gains in Crypto Markets
Money illusion is the cognitive bias where individuals perceive wealth in nominal terms rather than considering its actual purchasing power.
Zero-Risk Bias: The Illusion of Risk-Free Trading
Zero-risk bias describes the irrational preference for completely eliminating a small risk, even when other options could lead to a greater overall reduction in risk.
Pseudo-Security Effect: Deceptive Safety of Stop-Loss Orders
Traders often perceive stop-loss orders as a guaranteed safety net, but this can lead to a false sense of security.
The Ostrich Effect: Avoiding Portfolio Review During Market Downturns
The Ostrich Effect is a cognitive bias where investors avoid negative financial information, especially during market downturns. This temporary emotional relief comes at the cost of informed decision-making and can lead to magnified losses.
Commitment Bias: Persisting with Losing Trade Theses
Commitment bias describes the psychological tendency to remain invested in a past decision, even when evidence suggests it is no longer optimal.
Present Bias in Investing: Prioritizing Immediate Rewards
Present bias describes the human tendency to overvalue immediate rewards and costs compared to future ones, even if future outcomes are objectively more beneficial or less detrimental.
Hyperbolic Discounting: Prioritizing Immediate Gains in Trading
Hyperbolic discounting is a cognitive bias where individuals prefer smaller, immediate rewards over larger, delayed ones. In trading, this often leads to premature profit-taking, sacrificing potential long-term gains for quick wins.
Ambiguity Aversion: Why Traders Shun Unclear Situations
Ambiguity aversion describes the human tendency to prefer known risks over unknown risks, even if the expected outcome of the unknown risk might be higher.
Overconfidence vs. Dunning-Kruger: Understanding Their Overlap in Trading Psychology
Overconfidence and the Dunning-Kruger effect are distinct cognitive biases that frequently intersect in financial markets. Both phenomena describe an inflated self-assessment of one's abilities, leading to suboptimal decision-making.
Base Rate Neglect in Decision Making
Base rate neglect describes a cognitive bias where individuals overlook general statistical probabilities in favor of specific, often vivid, information.
Conjunction Fallacy: Overestimating Plausible Narratives
The Conjunction Fallacy describes a cognitive bias where individuals perceive a combination of events as more probable than one of the individual events alone.
Attribution Error in Trading: Misattributing Causes
The attribution error in trading refers to the tendency to misassign the causes of trading outcomes, often attributing successes to personal skill and failures to external factors.
Self-Serving Bias: Attributing Success to Skill, Failure to Luck
The self-serving bias is a cognitive tendency where individuals attribute positive outcomes to their own abilities and negative outcomes to external circumstances.