Behvioural psychology can explain the major hurdles traders will experience when trying to become consistently profitable

This is an excellent documentary on behavioural economics, illustrating the impact of risk aversion on trading decisions.

Most traders will blow their accounts when they start, and a large majority of experienced traders will have long winning streaks, only to blow all their profits in one day.

Taking the contents of this documentary and applying it to trading, it is clear to see why traders can have long periods of consistent trading, only to lose everything in a short period of time. The key reasons are written in our DNA, and have been with us for thousands of years, they include :

  • Confidence bias – being too confident after a winning streak
  • Loss aversion – taking higher risks to avoid losses
  • Risk aversion – Closing winning trades early for the safety of a sure win

About the author

Trading and Investment

Traded the markets for over 15 years, including Commodities, Bonds, Currencies, Equities, and Indices. I have also worked as a Chartered Financial Planner.
CeMAP, CeFA, DipFA, AdvDipFA, Ba(Hons) Economics, Chartered ALIBF

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