Discussions
What is the effect of self-confidence in trading?
9 days ago by Evgen Elevetov
The overconfidence effect in trading leads to several negative outcomes. Traders may overestimate their ability to predict market movements, leading to poor decision-making and increased risk-taking. This can result in higher levels of trading activity, more frequent trades, and ultimately, poorer investment performance.
Furthermore, overconfident traders may underestimate the role of randomness and external factors in financial markets. They might ignore risk management principles and fail to diversify their portfolios adequately. This can lead to significant financial losses and damage to their investment capital, as well as reduced trust in their own judgment and decision-making abilities.