Have you ever noticed how you suddenly see a specific car everywhere after thinking about buying one? Thatās selective perception: a cognitive bias where your mind filters information to match your beliefs or desiresāan effect deeply explored in trading psychology. In...
The Narrative Fallacy is our tendency to believe in stories that make sense, even when they lack factual support. We crave patterns and explanations, so we construct narratives to make sense of random eventsāa mental shortcut often discussed in trading psychology. A...
In this week's Enlightened Stock Trading newsletter we cover: šStock Market Update: What happened in the markets this week āļøScenarios: What could happen next & what to do about it š§ Trading Psychology: You don't belong here... and the lies we tell ourselves š°Kelly...
Regret aversion is the tendency to avoid making decisions out of fear that the outcome will lead to regret. Itās why people often hesitate to take action because they'd rather avoid regret than face potential loss. This concept is central to behavioral finance and...
The Disposition Effect is a well-documented psychological bias where traders tend to sell winning stocks too early and hold onto losing stocks too long. Most of the studies in the field of behavioral finance have attributed this phenomenon to prospect theory, a core...
The Endowment Effect is a cognitive bias where people place a higher value on things they own compared to identical things they donāt. It explains why you might hesitate to sell an old car at a fair market price or why collectors overprice items they own. Recent...
Familiarity bias in trading is a psychological tendency that leads investors to prefer assets and markets they know well, often at the expense of better opportunities elsewhere. Instead of objectively analyzing all available options, they stick to what feels "safe,"...
The Framing Effect is a cognitive bias where the way information is presented influences decision-making, even when the underlying facts remain the sameāa concept frequently explored in trading psychology. Imagine youāre at the supermarket and see two labels: ā90%...
When traders find themselves in a losing position, logic should dictate an exit. But instead of cutting their losses, many double down, convinced that the trade will turn around if they just hold on (or buy even more). This is an escalation of commitment, a powerful...
Money illusion is an economic theory that suggests that people think in terms of absolute dollar values rather than real purchasing power. This happens because inflation and currency value changes arenāt always factored into decision-makingāan oversight often explored...