A trader’s psychology matters just as much as technique. No matter how perfect the rulebook you build, it’s useless if you can’t stick to it. Mastering your mind is often what separates profitable traders from everyone else — far more than any knowledge of indicators or strategies.
System development, the strategy you use and risk management are all tightly bound to mindset. It’s with clear, rational and disciplined thinking that you’ll find success and profitability. Nothing works over the long run if your “evil twin” regularly grabs the mouse in your place. To dig deeper into this fundamental topic, check out our complete guide to trading psychology.
The 3 most common psychological mistakes in trading
Three of the main psychological mistakes made in trading — by beginners and seasoned traders alike — are:
- the fear of missing out on a great opportunity (FOMO),
- trading to get even (revenge trading),
- gambler-like behavior: getting caught in the machinery of chance.
Key takeaway: these three mistakes have nothing to do with your technique. They all come from the same place — a lack of discipline and emotional control in the face of a trading plan you just can’t stick to. The good news: all three are fixed with the same levers.
How to manage your emotions and stop repeating these mindset mistakes
FOMO in trading: how do traders handle the fear of missing out?
FOMO stands for Fear Of Missing Out — the fear of missing out on a chance to make money, or any other kind of opportunity.
FOMO can come from several places: the moonboys flooding social media are one sad example. If you see me making profits, rest assured it’s because I’ve been working on my technique and my mindset for years, not for a few weeks.
In trading and investing, FOMO is also the psychological mistake of seeing a move on a market you’re not in, yet feeling a strong urge and desire to jump on the trend. The problem is that it usually happens too late.
The fear of missing something can push you into a trade outside your trading plan, outside your system and without a valid signal, driven by the emotional desire to take part in a strong move you missed but that’s still running. The fear is to completely miss out on a great, profitable opportunity and decide “better late than never” — which is almost always a psychological and technical mistake! You’re blinded by all that green and you forget the technical basics. Your filter turns into a sieve…
The best way to fight FOMO is to believe that the current opportunity is just one of the next 100 you’ll get, and that all you have to do is wait for the next one. And honestly, between us, if trading were a twice-a-year or seasonal activity, I wouldn’t be here — believe me!
A trader also has to focus on their own watchlist and strategy.
It’s essential to stick to your system even when tempting things come your way; don’t step outside the quantified edge you’ve defined. The best safeguard against this impulse is still a written trading plan you hold to no matter what: if the signal isn’t in it, you don’t take the position.
Playing on charts outside the parameters you’ve set quickly becomes a problem when things don’t go as planned. And that happens fairly often when the trend isn’t clear.
A real trader also has to stay within their timeframe and resist the temptation to gamble. Running your trading like a business forces you to exploit your system rather than chase random bets.
No single trade should ever carry too much weight for a trader who thinks about the big picture and long-term trading success.
The value of an opportunity lies in the timing, and if your entry is too late, what looks like a blessing can quickly turn into a curse.
Temptation, jealousy and greed are all emotional signals triggered by FOMO, and the remedy for them is discipline and focus on your own system and your own edge. Learning to manage your stress and emotions in trading is decisive here: it’s what lets you stay cool when the market goes wild. Too many traders drown in losses chasing rainbows that quickly turn into waterfalls.
FOMO is expensive — don’t be one of those who feed the cause!
Revenge trading: how to avoid trading for revenge
Revenge trading is the strictly irrational desire to win back your losses on the very same market, the same chart and the same stock where you just lost — as if it were a matter of honor not to lose twice in a row.
The subtle truth in trading is that your only enemy — well, it’s you!
Revenge trading is usually triggered by an ego that feels beaten by a stock (WTF) and wants to take revenge on the chart by offsetting the losses with new profits. A trader can become obsessed with the idea of winning their money back on the very chart where they lost it, just to feel even again by trading it.
To each their own, but it can stem from several feelings — for example, feeling superior or having beaten an imaginary opponent… Ridiculous, you’ll tell me.
That said, who has never sworn at their computer, yelling “TAKE THAT IN YOUR FACE”?!
Among the most competitive of us, it wreaks havoc! We hate to lose and we always want to prove we’re right. It’s human, so to counter it you have to cross an important psychological threshold.
Like any mindset problem, the solution to this flaw is much easier said than done…
- Don’t take losses personally,
- Follow a system with a diversified watchlist,
- Move on to the next trading opportunity “without looking in the rearview mirror”.
With appropriate position sizing and risk management, each trade really will just be one of the next 100 trades. If you put your ego on the line every time, you’ll never stop torturing yourself.
Why is it crucial to avoid revenge trading?
- It blinds you to other trading opportunities.
- Your emotions take over.
The crypto market is vast. No one in this market is forced to win money back the same way it was lost.
There was a reason you missed that trade; define it clearly in your journal, but don’t come back to it before your weekly or monthly review.
A friendly reminder: revenge trading is part of no profitable trading system known to date.
Whatever happens, never make your desire for revenge a priority. This isn’t a bet between friends, and no one will come to tell you “Well played… you got me!” if, by luck, your diabolical plan worked.
The “gambler’s” psychological mistake: understanding and avoiding the randomness bias
This mindset mistake comes down to not understanding that chance is independent across random events.
This naturally leads you to believe you can predict the outcome of a random event based on the results of previous events.
Careful — I’m talking about random events here, not the recurring events we use every day in trading to anticipate upcoming moves.
The classic example of the gambler’s fallacy happens when someone flips a coin or bets on red and black at roulette. Whatever your results, you’ll tend to build probabilities out of them. It’s exactly the same trap that lurks in poker, which is why turning poker into training for trading is so instructive: you learn to reason in terms of variance and expectancy rather than in a string of “hands”.
In reality, every random event is unique and has strictly no effect on what comes next.
A profitable trader understands that every trade on the market is unique and carries a share of randomness that’s impossible to control. No trade has a certain outcome on the markets, and no chart has any duty to bounce back up no matter how many times it has fallen, and no next trade has to be a winner just because a previous streak is a loser.
Anything can happen at any time, which is why traders need stop-losses, need to master trailing stops and appropriate position sizing to handle uncertainty. There are also suitable strategies like hedging to reduce the possible impact of randomness…
A profitable trader has to think in terms of a positive-expectancy model over a large sample of trade signals, where each trade is managed for minimal losses and maximal returns.
Successful traders use discipline, logic, mathematics and focus to overcome mental mistakes and turn a profit. If you’re just starting out, our trading basics will give you the essential foundation to build a solid mindset from day one.
Forget the lucky charms — they have no place here!
Happy trading, everyone.
Frequently asked questions: trading psychology
What is FOMO in trading?
FOMO (Fear Of Missing Out) is the fear of missing an opportunity. In trading, it pushes you to enter a position outside your plan, without a valid signal, just to avoid missing a move that’s already underway. The remedy: treat every opportunity as one of the next 100 and stick to your system.
How do you avoid revenge trading?
Revenge trading means wanting to win back your losses on the same asset, out of ego. To avoid it: don’t take losses personally, follow a system with a diversified watchlist, and move on to the next opportunity “without looking in the rearview mirror”. Good risk management and a reasonable position size take the emotional stakes out of every trade.
What is the gambler’s fallacy?
It’s the mistaken belief that you can predict a random event from previous results (for example: “the market has dropped 5 times, it must go back up”). Every trade is independent: you have to reason in terms of positive expectancy over a large sample, not in streaks.
Is psychology more important than technique in trading?
The two are inseparable, but an excellent system is useless if you can’t apply it. It’s discipline and emotional control that turn a strategy that’s profitable on paper into real results. To go further, see our guide to trading psychology and our tips for managing your stress.
