Day Trading Trading Psychology 2

Question 1

A trader holds a losing position overnight hoping it will recover, violating their own rule to exit by day's end. This behavior is best described as:

Accepted Answer

Loss aversion bias

Answer

Loss aversion causes traders to hold losers too long because the psychological pain of realizing a loss outweighs rational risk management.

Question 2

After a string of five winning trades, a day trader doubles their position size without adjusting their risk parameters. This is most likely caused by:

Accepted Answer

Overconfidence bias

Answer

Overconfidence bias leads traders to overestimate their skill after a winning streak, causing excessive risk-taking.

Question 3

Which technique is most effective for a day trader who finds themselves making impulsive trades after a significant loss?

Accepted Answer

Take a mandatory break and review your trading plan

Answer

Stepping away and reviewing your plan interrupts the emotional cycle and restores disciplined decision-making.

Question 4

A trader only reads articles that confirm their bullish bias on a stock they hold. This psychological pattern is called:

Accepted Answer

Confirmation bias

Answer

Confirmation bias is the tendency to seek and favor information that supports one's existing beliefs while ignoring contradictory evidence.

Question 5

The 'sunk cost fallacy' in day trading most often manifests as:

Accepted Answer

Holding a losing trade because of the money already lost in it

Answer

The sunk cost fallacy leads traders to remain in bad trades because they focus on past losses rather than future probabilities.

Day Trading Practice Test

Day Trading Practice Test

Day Trading Trading Psychology 2