When trading forex, the biggest obstacle is rarely lack of skill. It’s the way we think.
Even experienced traders make the same mistakes over and over, because their decisions are influenced by biases, shortcuts and habits.
Here are some of the most common thinking errors that lead to bad entries, and how to begin avoiding them.
1. Confirmation bias: You see what you want to see
Confirmation bias means favouring information that confirms your existing belief and ignoring what contradicts it.
Source: https://zforex.com/blog/trading-psychology/cognitive-biases-in-trading/?utm_source=chatgpt.com
If you believe EUR/USD is going to rise, you may highlight bullish news and ignore warning signs.
You end up trading your expectation instead of the market.
Fix: Ask yourself: “What must be true for this trade to fail?” Then look for evidence of the opposite.
2. Anchoring: Sticking to your first idea
Anchoring means relying too heavily on the first price, level or opinion you saw.
In forex this often looks like refusing to adjust a stop loss because you’re anchored to your entry price, even when structure has changed.
Fix: Reset your thinking every time you re-analyse the chart.
3. Overconfidence: Assuming the market will follow your idea
Overconfidence bias makes traders take larger risks or trade too frequently.
You might think: “The market should move this way — I’m right.”
But the market does not reward certainty, only preparation.
Fix: Review past trades and ask whether each one actually matched your rules.
4. Recency bias: Judging the next trade by the last few
Recency bias means you expect future behavior to repeat whatever just happened.
Source: https://www.babypips.com/trading/psychology-4-lesser-known-cognitive-biases-trading-decisions-2024-12?utm_source=chatgpt.com
Three wins in a row can make you overconfident.
A losing day can make you overly cautious.
Either way, you’re reacting to emotion, not structure.
Fix: Zoom out. Compare your current setup to successful examples from further back.
5. Loss aversion: Avoiding small losses and creating bigger ones
Loss aversion means preferring to avoid losses rather than make rational decisions.
This leads to holding losing trades too long and taking profits too early.
Fix: Set your stop loss before the trade and respect it.
6. Herding & availability heuristic: Trading what everyone sees
Herding means following the crowd simply because many others are reacting.
Availability heuristic means making decisions based on the most recent or most visible information.
In forex, this often leads to jumping into a move that has already been priced in.
Fix: Ask: “Is this setup obvious to everyone?” If yes, the edge may already be gone.
Conclusion
Bad entries rarely happen because of your tools.
They happen because of how you interpret the chart.
If you recognise these common biases — confirmation, anchoring, overconfidence, recency, loss aversion, herding — you can reduce bad trades quickly and improve overall decision-making.
Trading is not about predicting every move.
It is about avoiding the moves you should not take.
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