Greed, fear, expectation, and other emotions in the game of market volatility

The core of trading mentality is the balance between emotional control and probabilistic thinking, which essentially is the confrontation between human weaknesses (such as greed and fear) and market uncertainty (volatility). Here are the key points:

1. Three core obstacles of negative mentality

Sunk cost effect: Refusal to cut losses due to already invested funds, leading to expanded losses.

Anchoring effect: Over-reliance on historical prices or subjective expectations, ignoring real-time market changes.

Disposition effect: Taking profits too early while holding losing positions for too long, damaging the risk-reward ratio.

2. The five most destructive emotions

Greed: Manifested as over-trading or heavy positions, typically seen in the mindset of "wanting to double up again after already doubling."

Fear: Leads to missed opportunities or premature stop-losses, commonly seen in traders after experiencing a margin call.

Expectation bias: Holding unrealistic hopes for a turnaround in losing positions.

Anxiety: Decision paralysis triggered by market volatility, such as excessive reactions during black swan events.

Overconfidence: Ignoring risk management, often reflected in self-suggestions like "this time will definitely be different."

3. Methods for cultivating a positive mindset

Establish systematic trading rules.

Use quantitative standards such as a 3:1 risk-reward ratio.

Clearly define entry/exit trigger conditions (e.g., multi-timeframe resonance signals).

Behavioral training techniques.

Maintain a trading diary (including emotional state annotations).

Set a maximum daily loss limit (recommended ≤2%).

Cognitive restructuring.

Accept the essence of the probability that P(win) < 50% can still be profitable.

View stop-losses as "trading costs" rather than mistakes.

Key conclusion: The commonality among top traders is minimizing emotional interference through mechanical trading systems while maintaining respect for market volatility. As the search results show: "70% mentality, 30% technology" reflects the underlying logic of using rules to counter human nature.