Trading Psychology: Definition, Examples, Importance in Investing

“The performance of a trader’s portfolio is linked to the investment decisions made, which are in turn affected by the trader’s emotions, subjective inclinations and mental processes. Investment decisions may be arrived at through the use of fundamental analysis, involving use of data from a company’s financial statements and regulatory filings, along with data on economic conditions. Alternatively, technical analysis, may be employed for decision making, involving the use of historical market price and volume data. Regardless of the type of data used, biases (subjective prejudices), and heuristics (unconscious mental shortcuts and patterns), can affect an individual’s collection and interpretation of data. This can impact decision making and result in errors in judgement, potentially leading to suboptimal portfolio performance.”