Category: Risk & Issue in Trading

Prospect Theory, introduced by Kahnemann and Tversky in 1979, stands as a foundational concept in behavioral finance. Its significance was underscored by Kahnemann’s Nobel Prize in Economics in 2002. What is Prospect Theory, and how does it detrimentally impact traders? This theory elucidates a fundamental trading error pervasive among traders. Let’s dissect it step by…

In the dynamic realm of financial markets, where every tick of the clock can represent a potential profit or loss, the importance of patience cannot be overstated. Yet, despite its recognized significance, many traders struggle with impulsive decisions, for example as in the case of impatient entries. These premature trades, executed before the market reaches…

Overcoming impatient entries requires a comprehensive approach that addresses both the psychological and practical aspects of trading. Traders should begin by acknowledging and understanding their susceptibility to impulsive behavior, especially in high-pressure situations. By fostering self-awareness and mindfulness, you can identify the onset of FOMO and implement strategies to counteract its influence. Developing a robust…

In the fast-paced world of trading, opportunities can arise suddenly, often accompanied by the temptation to seize them swiftly. One such temptation is known as “catching a falling knife,” a behavior where traders rush to buy an asset that has just experienced a sharp price drop, hoping to profit from an imminent reversal. However, this…

Volatility plays a pivotal role in financial markets, especially during periods of significant news events that influence asset prices. News trading, characterized by trading in response to these news-driven price movements, presents unique challenges and opportunities for traders. Many traders attempt to capitalize on these high volatility environments by scalping profits; however, the rapid and…

Have you ever found yourself closing a winning trade too early, only to watch it continue to rise after you’ve exited? If so, you’re not alone. Many traders experience the urge to “cut profits early,” a behavior driven by the fear of losing unrealized gains. While it might seem like a cautious move, this tendency…