๐ 'Peak of Stupidity' in trading: How does the Dunning-Kruger effect deceive you? ๐จ
Do you think you are an expert in trading after a successful deal? Beware, you might fall victim to the Dunning-Kruger effect! ๐ This cognitive bias makes you overestimate your skills when you are a beginner, only for your confidence to suddenly collapse at the first major loss. In the book 'The Rich Trader and the Poor Trader', this concept is cleverly explained, showing the trader's journey from illusion to maturity:
๐น The Dangerous Journey of the Beginner Trader
1. Peak of Stupidity ๐:
ยท After quick profits, the trader thinks the market is 'easy', overly trusting in his decisions.
ยท The most famous phrase: 'I have discovered the secret to quick wealth!' ๐ธ
2. Valley of Despair ๐ต:
ยท Losses reveal his lack of experience, leading him to spiral into doubt: 'Am I a failure?'
3. Slope of Enlightenment ๐:
ยท Begins serious learning, building true confidence based on experience, not luck.
4. Plateau of Sustainability ๐๏ธ:
ยท Reaches a stage of financial humility, where he realizes that markets change, and learning does not stop.
๐ก Why is humility the secret to success in trading?
ยท Risk management: the humble acknowledges his mistakes and uses stop-loss orders.
ยท Adapting to the market: learns from crises and does not cling to opinions.
ยท Emotional control: does not rejoice in fleeting gains nor despair over losses.
๐ Summary:
The market is not a playground for the arrogant! True success begins when you acknowledge that you don't know everything and turn into a lifelong learner. ๐ง
