Trading Psychology: 10 Biases to Avoid!

[@Z1g0l]

Oh man, I've discovered your channel yesterday. I've been looking for channel about options trading and algo trading and yet you also describe many psychological biases in which I'm as well very interested in. And on top of that you mention Daniel Kahneman's book Thinking Fast and Slow which is my favourite/most important book in my life! You've got yourself a subscriber mate.

[@TradeOptionsWithMe]

Thank you!

[@Javelinbusiness]

extremely informative . thank you

[@TradeOptionsWithMe]

You are very welcome!

[@mrmoh2]

This video must have millions of views.

[@TradeOptionsWithMe]

Thank you!

[@jasongibson4737]

Thank you so much! Very informative! I will have to be more aware of moods and thinking while trading. I'll also be sure not to base any crude oil trades on the overall consumption of chicken....LOL I got a good laugh from that! Thank you!

[@TheVolume-w3o]

Subscribed 😊❤ Thank You Can You Make More Videos On Cognitive Biases In Trading...

[@DavidThielen]

If someone flips a coin and gets heads 10 times in a row - then I want to look at that coin. After all, it may be a 2 headed coin. And by the same token, a deck for blackjack can be hot, if it's 10 rich toward the end. In that case past performance is indicative of what comes next until the deck is used up. With that said, yeah most people do not understand that past performance has no bearing on future performance for things that are independent of what has already occured.

[@caiusKeys]

Feel lucky!

[@JohnXOsterman]

Gambler’s fallacy question... if every new coin flip has a 50% chance of hitting heads, regardless of multiple prior flips.... then would not every new strategic attempt that has a 70% chance of hitting a win, always be 70% chance of hitting a win regardless of multiple prior strategic attempts?

[@JohnXOsterman]

But it seemed like in your 70% strategic attempts example, the odds of hitting a consecutive outcome diminishes after each prior attempt, and that seems to be like every new coin flip has a diminished odds of occurring again based on prior results, but that seems to contradict the gambler’s fallacy of every flip having a brand new odds of a 50% chance of heads.

[@TradeOptionsWithMe]

It depends on your point of view. You’re correct in saying that there is a 70% chance of winning on every trade regardless of the outcome of the prior trades. However, the odds that the next 2 trades will be winners is much lower. The odds of 3 consecutive wins is even lower, and so on. So if you only consider the next trade, the odds are 70%. But if you consider the next N trades, the odds are 70% to the power of N.

[@JohnXOsterman]

@@TradeOptionsWithMe cool. That is helpful. So there are two equations. So now, what are the odds of flipping heads in coin flips for the next n coin flips?

[@TradeOptionsWithMe]

If we assume that the coin is fair (50% chance of landing on heads), the probability would be 50% to the power of n.

[@JohnXOsterman]

@@TradeOptionsWithMe thank you! That is consistent.

[@omai225]

Prices are not independent of each other, so they can definitely have a continued losing streak

[@TradeOptionsWithMe]

That’s true. I guess it was a simplified example, but I still wouldn’t base a trade purely on the fact that a stock had a couple of down days. Furthermore, this way of thinking can be problematic in many other ways besides price moves. For instance, there are people that increase their trade size purely based on the fact that they had a streak of losing trades because they believe it’s less likely to have another losing trade.

[@Sunil-ne8mx]

Chicken consumption and crude imports? Lol