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Trading psychology

Overconfidence

Trading overconfidence is the systematic overestimation of your own skill — three lucky wins in a row can quietly set up an account-ending fourth bet.

Overconfidence in trading shows up as oversizing after wins, ignoring the plan because 'I've got a feel for this market,' and dismissing risk-management rules as too conservative.

Studies of retail traders consistently find that average self-rated skill is significantly higher than actual returns would suggest. This isn't unique to trading — it's the Dunning-Kruger effect applied to a domain where feedback is delayed and noisy.

The dangerous variant: feedback misattribution. After a lucky win, the brain attributes the outcome to skill rather than luck, then escalates risk on the next trade. Three lucky wins in a row can produce an account-ending fourth bet.

Counters in the journal world: track per-trade self-grades, then check whether your A-grade trades actually outperform your C-grades over 50+ trades. Most traders find their self-ratings are uncorrelated with outcomes — humbling but useful data.

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Not financial advice. This page describes a commonly-used trading concept for educational purposes. It is not a recommendation, does not predict performance, and is not personalized advice. Past performance does not guarantee future results.