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Psychology: Optimism - Good for Life, Hazardous for Trading

Psychology: Optimism - Good for Life, Hazardous for Trading

John Kicklighter,

Talking Points:

• A trader's psychology is a critical factor in successful trading

• There are many 'cognitive biases' that make cloud or improve trading, but the Optimism Bias is more of a risk

• While optimism is a good mentality in general life, minimizing perceived risks is dangerous for trading

What are the Traits of Successful Traders? See what our studies have found to be the most common pitfalls of retail FX traders.

Trader psychology is a critical ingredient to successful navigation of the markets. Without the proper frame of mind, it can be difficult - if not impossible - to take rational and well-thought out trades in an environment that is fraught with emotional turmoil. One of many psychological tendencies ('cognitive biases') that represent a certain risk to unaware traders is the 'optimism bias'. While optimism may be a default that favors a healthy and happy person in the normal course of their life, it can lead to poor trading habits and results when carried over to the market. A presumption that positive outcomes are more likely to occur and negative outcomes are less likely to happen is inherently detrimental to dispassionate risk assessment. We discuss how optimism may undermine your trading and the means to avoid overcome it in today's Strategy Video.

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.