The world of Finance and Trading is complex. You have to keep your emotions in check while making an investment or you can end up making mistakes. Now, you must be wondering about what kind of mistakes I am talking about and how they are linked to emotions. I will let you know everything in this article. In the world of Finance and trading, there is a concept called Behavioural Bias which can affect your trading decisions negatively. Online trading platforms like Finkea, often assist with some advanced features to deal with this type of issue. Let’s get to know more about this Behavioural Bias so that you can avoid it while making your investment.
What is Behavioural Bias in Finance?
Behavioural bias is an area of Behavioural Finance which explains that in real life even seasoned traders make mistakes in decision-making due to some behavioural issues. Due to these behavioural biases their trading decisions often lack rationality which leads to unexpected outcomes. So, traders need to be aware of these types of biases so that they can make effective trading decisions. In this article, I am going to discuss four important behavioural biases that have the greatest chance of corrupting our trading decisions.
1. Remorse or Regret
One of the strongest feelings in the trading world is regret or remorse. Every professional seasoned trader felt this at least once in their trading journey. To avoid this feeling traders often sell their winning assets or shares too early and end up earning less profits. This can be harmful to your trading experience. On the online trading platform of Finkea, you can make use of its Stop Loss feature which can limit your loss in case of any unwanted situation. This way you have a lower chance of having any regret.
2. Overconfidence
Another behavioural bias that has a major negative impact on the traders’ trading decisions is overconfidence. Research shows that due to overconfidence traders often trade frequently without proper observation of the market trends. This makes them lose all their profits within a certain period of time. So, it is important to keep this behavioural bias in check. With Finkea’s advanced technological tools like real-time news, market charts of different timelines and others you can avoid this bias.
3. Following the Trends Blindly
This is basically the most common trading bias. People often try to follow the trends considering the success of past performance. Once they identify a pattern they blindly start to follow it. However, as the Forex market is extremely volatile, following the trend is not always the best option. You need to focus more on your trading strategy and plan to become successful.
4. Impatience and Short Attention Span
This is the type of bias that limits the trader’s portfolio. In the Forex market, thousands of assets and stocks are available. But the traders do not have the patience to go through all of them. As a result, they choose from their limited knowledge and ideas. To avoid this bias you need to research more and learn about the assets and stocks with patience.
