Has this ever happened to you? Friday rolls around, you look back at your trading week and think: "Why did I do that?" "Why do I have so many stupid trades this week?"
It's not because you're dumb. It's because your brain is actually hardwired to screw you.
I'm going to walk you through 8 mental landmines.
Landmines that cause traders to blow up accounts, bail early, and hold garbage forever.
I'll show you how to spot them and how to fight back. Stick around because if you master even one of these, you'll instantly be ahead of 90% of the traders out there.
I've been around Wall Street since 1987. I've traded through real estate collapses, financial crises, COVID, crypto craziness, you name it.
What I tell my students:
"Trading is 90% psychology. What's going on up here, and 10% execution.”
It doesn't matter how good your charts look. It doesn't matter how many monitors you own. If you don't control your brain, you're toast.
Mental Landmine #1
Mental Landmine #1 is Loss Aversion.
This one is sneaky because it feels like common sense. Humans hate losing money. Studies show that losing a hundred bucks hurts twice as much as winning a hundred bucks.
So what happens when you trade? You see a perfect setup, but all you think is: "What if I lose on this trade?" You freeze or you pass, or you take the trade, it goes green, and the second you're up 1 or 2%. Boom! You slam the sell button.
Then you watch it run 15% without you. That's not the market screwing you. That's called loss aversion.
How do you beat it:
Before you buy, set your risk parameters: I'm going to risk $200 on this trade. Done. As soon as you enter the trade, you place that stop immediately. You don't trust yourself later to set that stop.
Here’s the mindset shift:
A good trade is not the one that makes money. A good trade is one where you followed your rules, even if you lost.
As silly as it sounds, go ahead and say it out loud. I followed the plan. It was a good trade. That reframe keeps you sane.
Mental Landmine #2
Mental Landmine #2 is the Sunk Cost Problem.
Here's a classic line: "It's not a loss until I sell it." You've said it. I've said it. That's called the sunk cost effect. You've already sunk money into the trade, so you treat it like it's extra valuable.
Here’s what happens. You buy a stock and it drops 5% and you hold it. It drops down 10% you hold again. It drops 20%, now you're saying, "Oh, I'll just hold it and wait for it to come back".
The next thing you know, you are a bag holder, or you do what my dad used to do, called the moron position. The more the stock drops, the more shares you put on, the moron position.
The more it drops, the more shares you add until you're buried so deep you can't breathe.
I've been there early in my career. I had to learn the hard way.
How do you beat it:
Ask yourself this every single night, "If I had zero shares right now, would I buy the stock today?" If the answer is “No”, close the position, cash it out. Opportunity cost is real.
If you want a shortcut to years of trial and error. Download The Ultimate Guide to Trading Stocks for free here. It is packed with the setups, the tools, and the rules I use every single day.
Mental Landmine #3
Mental Landmine #3 is the Disposition Effect.
This one is brutal. You cut winners way too fast, and you hold losers way too long. You end up with tiny wins and a few monster losses that nuke your entire account. It feels safe in the moment, but it's death over time.
How do you beat it:
Flip the script. Small losses, bigger wins. Period. Scale out of winners on the way up. Hard stop on losers is non-negotiable.
You buy a stock, you put a stop order in right below what you paid for it. If that stock starts to work, you gradually raise your stop using a methodology, which I describe in The Ultimate Guide to Trading Stocks.
Mental Landmine #4
Mental Landmine #4 is the Outcome Bias.
Ever take a total garbage trade and it worked? Feels amazing, right? See? Breaking rules works sometimes. That's dangerous thinking.
The truth:
A good trade is one where you followed your rules, even if you lost.
A bad trade is one where you broke your rules, even if you won.
How do you beat it:
Grade yourself on your process, not on your P&L. Ask yourself: Did I stick to my plan? Did I respect my stop-loss? Did I size the position correctly?
That's how pros think.
Mental Landmine #5
Mental Landmine #5 is The Recency Bias.
This one gets me still to this day. Your last five trades feel like the whole truth. Lose five in a row. You're terrified to take the next setup. You win five in a row, and you start thinking you're George Soros. Both are killers.
How do you beat it:
- Know your numbers.
- Track your win rate.
- Track your average win dollar amount.
- Track your average loss dollar amount.
If your expectancy is positive, one cold streak doesn't matter. And one hot streak doesn't mean you're invincible.
This has happened to me so many times. I get real hot, then I get cocky, then I break my rules, then I take a much bigger hit than I normally would take. The key is to keep your size steady, adjust only when your stats, not your mood, say so.
Mental Landmine #6
Mental Landmine #6 is Anchoring.
This one's sneaky. You latch on to a number, like your account high, the high number of your account, or a stock's round number, and you won't let it go, like a hundred dollars a share.
You'll say something to yourself like: "I can't sell it at 48 bucks. It was 55 just last week." Well, guess what? The market doesn't care about your memory.
How do you beat it:
- Use rules-based exits.
- Sell a chunk into strength.
- Trail the rest with a stop order.
It's always easier to sell on the way up than to panic sell on the way down.
Mental Landmine #7
Mental Landmine #7 is Groupthink and Confirmation Bias.
This is so exaggerated today in a world of social media. Hang out with the wrong crowd and you start thinking like them. Think trading chat rooms, financial TV, and you're buddy texts you: "Tesla to the moon!"
Pretty soon, you're not trading your system anymore, you're trading Twitter or StockTwits.
How do you beat it:
- Write down your methodology.
- Write down your thesis before reading anyone else's.
- Limit your social media and financial TV while you trade.
Honestly, you should limit them in general because there's so much noise out there.
And argue the bear case before you go long a stock. Make an argument for yourself. “Why is this not going to work?”
If you can't handle hearing the other side of the trade, you're not seeking the truth. You're seeking comfort.
Mental Landmine #8
Mental Landmine #8 is Limited Data Effect.
This is a rookie mistake. It's about declaring victory after just 10 trades on some new theory. Something like: "Oh man, this moving average crosses gold." Until it hits a new market cycle or a fresh breakout, and it nukes your account.
How do you beat it:
- Test your system across hundreds of trades, across different markets.
- Commit to 50 or 100 live trades before making judgments.
- Only change one variable at a time.
You need a big enough sample size to know if you actually have an edge with some new theory that you have.
Recap Landmines
8 psychological landmines that wreck traders:
- Loss Aversion
- Sunk Cost
- The Disposition Effect
- The Outcome Bias
- The Recency Bias
- Anchoring
- Groupthink and Confirmation Bias
- Limited Data
Every trader needs to fight these, even me, after 30 years.
Your challenge:
Pick the bias costing you the most out of the eight I just mentioned. Write down one rule to fight it and commit to 20 trades with that rule.
If you do that, you'll already be ahead of most traders.
Don't forget to download The Ultimate Guide to Trading Stocks here.
May the trend be with you!
