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Trading glossary

Psychology words

44 words, each explained first as you would tell a ten-year-old.

1. anchoringWhen the first number you see sticks in your head and pulls your later guesses toward it, even when it no longer matters.
2. boredom tradingTrading just because you feel bored and want something to happen, not because a good chance showed up.
3. chasingJumping into a trade after price has already run far, because you are scared of missing out.
4. cognitive biasA thinking mistake: a shortcut your brain takes that makes you judge things wrongly without noticing.
5. confirmation biasOnly noticing facts that agree with what you already think, and ignoring the ones that do not.
6. consistencyDoing things the same careful way every time, instead of changing your rules because of your mood.
7. cool-down ruleA rule that makes you take a break after a loss, so anger does not push you into another bad trade.
8. disciplineSticking to your plan and rules even when your feelings tell you to do something else.
9. disposition effectThe habit of selling winning trades too early and holding losing ones too long, hoping they come back.
10. emotionFeelings like fear, greed, anger or excitement that can push you to break your trading rules.
11. entry ruleA rule you write in advance that says exactly when you are allowed to start a trade.
12. exit ruleA rule you write in advance that says exactly when to close a trade, whether it is winning or losing.
13. fearThe worried feeling that makes you want to run away from a trade, even when your plan says stay.
14. FOMOFear of missing out: the rushed feeling that you must jump into a move right now or miss your chance.
15. greedWanting more and more, which can make you hold a trade too long or bet too big.
16. hopeWishing a losing trade will come back instead of following your plan, which can make a small loss much bigger.
17. if-then ruleA plan written as 'if this happens, then I will do that', so you already know what to do when a tricky moment comes.
18. impulse tradeA trade made on a sudden urge, without checking your plan first.
19. leakA small bad habit that keeps losing you money without you noticing, like a hole in a bucket.
20. loss aversionFeeling the pain of losing money much more strongly than the joy of winning the same amount.
21. luckGood or bad results that come from chance, not from how well you played.
22. no-trade ruleA rule that tells you when you must not trade at all, like just before big news.
23. outcomeHow a trade turned out, win or loss. One outcome can be luck, so it does not prove you played well.
24. overconfidenceFeeling too sure of yourself after some wins, so you take bigger or sloppier risks.
25. overtradingTaking too many trades, many of them not in your plan, often because you are bored or excited.
26. plan adherenceHow well you stuck to your written plan, counted as a number, like following it in 18 of 20 trades.
27. planned exitGetting out of a trade exactly where your plan said, at your target or your safety exit, not where your feelings say.
28. pre-trade checklistA short list of questions you tick off before every trade, like a pilot does before take-off.
29. processThe steps you follow for every trade, like checking your plan, which you control even when results depend on luck.
30. recency biasThinking the last few things that happened will keep happening, and forgetting everything before them.
31. revenge tradingJumping into a new trade right after a loss, angry and trying to win the money back fast.
32. routineThe same set of steps you follow every trading day: get ready, trade your plan, then look back.
33. rule changeChanging one of your trading rules on purpose, after checking your notes, one change at a time.
34. scorecardA simple table that keeps score of how often something worked or how well you followed your rules.
35. size creepSlowly making your trades bigger and bigger after some wins, without meaning to.
36. skillBeing truly good at something, which shows up over many tries, not just one lucky win.
37. temptationA strong urge to break your trading rules, like chasing a fast move or trading bigger after a win.
38. tiltA hot, upset state after losses where you stop thinking clearly and start making wild trades.
39. trade limitA rule that sets the most trades you may take in a day, so you only pick your best chances.
40. trading journalA diary of your trades: what you did, why, how you felt and what happened.
41. trading planYour written list of how you trade: what to look for, when to get in and out, and how much to risk.
42. varianceThe natural up-and-down of results from luck, so even a good plan has bad stretches.
43. weekly reviewLooking back at all your trades once a week to find what went well, what went wrong and one thing to fix.
44. winning streakSeveral winning trades in a row, which can make you feel too sure of yourself.