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Chapter 9. Trading Inside the 24-Hour Storm > Trade with Your Personality

Trade with Your Personality

Over the past decade, behavioral researchers have examined the role that personal psychology plays in trading. Understanding some of the common mistakes traders make can better help you avoid these mental traps:

  • Self-confidence— In trading, there is a very thin line between bravado and stupidity. A trader must be careful not to overrate his or her abilities and knowledge. Traders should always review their strategy and search for alternative views and feedback.

  • Trade rationalization— A major problem in Forex trading is the enormous amount of available information. Researchers have found that investors look for information that supports their trading views while ignoring or discounting evidence that runs counter to their position.

  • Information weighting— When considering a strategy, a trader often gives greater weight to the first information he or she receives and then slants all additional information received after that.

  • Escalation of information weighting— To justify past decisions, regardless of success, individuals continue to trade on previous strategies. To avoid this pitfall, a trader should view each trade as a unique action.


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