The Psychology That Traps Traders

I often write against trading. There is a reason for that.

In the past few years, I have noticed a clear shift in the stock market. A large number of people have started trading actively. This includes people from all age groups — young investors, working professionals, and even retirees. What is more surprising is that many individuals from disciplined backgrounds, including defence officers, are also actively trading.

This trend is concerning. That is why I keep cautioning people against trading so that they become more careful and protect their hard-earned money. Unfortunately, free advice rarely carries value. Most people learn the truth only after suffering losses.

This brings us to a deeper and uncomfortable question:

“If trading is so dangerous, why do intelligent and educated people still fall for it?” The answer is not intelligence. It is human behaviour.

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The Psychology

Trading offers constant action. Prices move every second. Screens respond instantly. This creates a powerful illusion that effort, screen time, and intelligence can influence outcomes. Early wins, often driven by luck, reinforce this belief. Losses are ignored, justified, or labelled as “learning.”

Over time, trading stops being a conscious decision. It becomes a habit. And the reasons are psychological:-

• The illusion of control

  Frequent price movements create the false belief that outcomes can be managed through effort and timing.

• Early reinforcement

  Early wins build confidence, convincing traders that skill has been discovered.

• Selective memory

  Gains are remembered and discussed. Losses are rationalised, ignored, or buried.

• Action bias

  Doing something feels productive. Waiting feels uncomfortable, even when waiting is the correct decision.

• The thrill factor

  Trading works like gambling. Losses feel temporary, and the next trade brings new hope.

• Instant gratification

  Quick profits look attractive

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A Word of Wisdom

Educated professionals are particularly vulnerable because they believe that effort, intelligence, and experience reliably produce results. In most professions, this belief is correct.

Markets, however, operate very differently. They are driven by probability, randomness, and delayed outcomes.

Markets do not reward intelligence; they reward behavior. They reward discipline, patience, and time. And trading works against all three.

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-- Pady