Day Trading Trading Psychology 3

Question 1

A day trader exits a winning position minutes after entry because they fear giving back profits. This behavior is driven primarily by:

Accepted Answer

Loss aversion applied to open gains

Answer

Loss aversion causes traders to treat unrealized gains like possessions they might 'lose,' prompting premature exits before targets are reached.

Question 2

What does 'FOMO' (Fear of Missing Out) typically cause a day trader to do?

Accepted Answer

Chase a trade after the optimal entry point has already passed

Answer

FOMO drives traders to enter positions late, often at the worst price, after seeing a move they missed.

Question 3

A trader notices they always remember their winning trades vividly but forget most of their losses. This memory distortion is called:

Accepted Answer

Selective memory bias

Answer

Selective memory bias inflates perceived win rates and prevents accurate assessment of actual trading performance.

Question 4

Which of the following best describes the psychological concept of 'anchoring' in a trading context?

Accepted Answer

Over-weighting an initial price point when making subsequent decisions

Answer

Anchoring occurs when a trader fixates on a reference price (like their entry) and lets it unduly influence subsequent decisions.

Question 5

A trader thinks 'I knew this would happen' after a trade fails, even though they had no clear signal before the move. This is an example of:

Accepted Answer

Hindsight bias

Answer

Hindsight bias creates a false sense that outcomes were predictable, which can cause overconfidence and poor future planning.

Day Trading Practice Test