3 Behavioral Finance Traps (90% Traders Fall For) — Which One Ruins Your Trades?
“The assumption that investors are fully rational actors often does not hold in reality.”
— Robert J. Shiller (2013 Nobel Laureate in Economics, Founding Father of Behavioral Finance)
This isn’t just academic jargon — it’s a truth proven by decades of research into why even smart, experienced traders lose money. Shiller’s work shattered the myth of “rational markets” by showing that our own biases and emotions are the biggest threats to our portfolios. These 3 scientifically-proven traps mess up decisions, and almost everyone falls for at least one!
Ever held a losing stock to “avoid admitting defeat”? Or bought a hyped stock just because others did? Let’s break down the core traps with simple examples — you’ll almost see yourself here!
1. You’re Stuck in Your Own Head (Cognitive Rigidity)
Plainly said: Too stubborn to change your mind, even when the market says you’re wrong.
(Behavioral Finance Term: Cognitive Bias Cluster)
Overgeneralizing: Thinking “good company = good stock” (e.g., buying Alibaba/Li Auto for their name, ignoring crash risks).
Ignoring New Info: Only reading positive posts about your pick, or clinging to old beliefs (e.g., “Buffett never buys tech” — he owns Apple!).
2. You’re Tricked by What You See (Information Misprocessing)
Plainly said: Misreading info thanks to silly mental habits.
(Behavioral Finance Term: Information Processing Bias)
Anchored to One Number: Refusing to sell LULU unless it hits your $400 entry price — even if the stock’s fundamentals are falling apart and it could drop to $250.
Treating Money Differently (Mental Accounting): Gambling your bonus on meme stocks (“free money!”) but being scared to invest your salary — even though both are your hard-earned cash.
3. Your Feelings Control You (Emotional Extremes)
Plainly said: Traders swing between two extremes — here’s the split.
(Behavioral Finance Term: Emotional Bias)
Fear vs. Overconfidence: Some hold losing stocks for months (fear of loss); others day-trade 10+ times (thinking they’re "market geniuses").
Herd Mentality vs. Laziness (Status Quo): Some buy GameStop/AI stocks just to follow the crowd (FOMO); others hold underperforming Ford (F) instead of switching to Tesla (TSLA) — changing feels too much trouble.
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💡Discussion:
Which of these 3 traps have you fallen for the most? (Be honest!)
Share a story: Did one of these biases ruin a trade for you? What happened?
How do you fight these traps? Do you use rules, take breaks, or something else?
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When the stock starts to drop, I tend to hold on, hoping for a rebound. I hate turning a win into a loss, but that hesitation often makes it worse — profits vanish, and I end up in the red. It’s a hard lesson on how emotions quietly override logic, no matter how experienced we think we are. I’ve learned that discipline isn’t about knowledge, it’s about controlling feelings in real time.
To manage it, I now set clear take-profit and stop-loss levels and stick to them. Reviewing positions at fixed times instead of watching every move helps me stay calm and make more rational decisions. And when emotions kick in, I remind myself that protecting capital always matters more than chasing perfection. @Tiger_comments @TigerStars
I had a stubborn belief that Top Glove was essential. Pandemic or not, rubber gloves were a necessity.
I ignored the signs: Oversupply, collapsing selling prices & the labour investigations.
I misread the news : Earnings miss? Temporary. Downgrade? Overreaction. I filtered reality through my conviction.
I held on and told myself that it will bounce. It was a glove giant. But it didn't. It kept bleeding.
I did not just lose money. I lost clarity. My belief became a blindfold. That is the danger of cognitive rigidity : I stop seeing the hard reality.
Top Glove taught me that conviction without flexibility is a trap, that even defensive stocks can become dangerous.
It humbled me and taught me to challenge my beliefs, to respect price action and to listen to the market. That pain became wisdom. It makes me a better investor.
@Tiger_comments @TigerStars @TigerClub
I bought into Top Glove without keeping close tabs and had to sell at a loss.
For the other points, I am not illogical, I accept that I do not know enough and am always willing to read more, or have other perspectives guide my actions. I am happy to give get-rich-quick opportunities like meme stock or risky assets a miss (hearing about individuals who bought trump coins and getting burnt was shocking)
Another point I believe in is: do NOT invest in what you cannot afford to lose, especially if you cannot afford to pay attention or read up, if you dump your savings in and lose it all, that would be absolutely fatal.
（行爲金融學術語：認知偏差羣集）
過度概括：認爲“好公司=好股票”（例如，購買阿里巴巴-SW/理想汽車的名字，忽略崩盤風險）。
忽略新信息：只閱讀關於你的選擇的正面帖子，或者堅持舊的信念（例如，“巴菲特從不購買科技”——他擁有蘋果！）.
——羅伯特·J·席勒（2013年諾貝爾經濟學獎得主，行爲金融學創始人）
這不僅僅是學術術語——這是一個事實，幾十年的研究證明了爲什麼即使是聰明、有經驗的交易者也會虧損。希勒的工作打破了“理性市場”的神話，表明我們自己的偏見和情緒是對我們投資組合的最大威脅。這三個被科學證明的陷阱會打亂決策，幾乎每個人都至少中了一個！
Check them in the history - “community distribution“