The human mind is unique, capable of solving complex mathematical problems, analysing data and is capable of formulating strategies. Benjamin Graham said that the worst enemy of an investor is the investor himself. Though when it comes to investing, people make mistakes and most importantly, they do not learn from their mistakes. In financial markets, people fall victim to various psychological traps and then face the consequences. Because of which, these two concepts have been merged and resulted in a field known as Behavioral finance. 
When we talk about the decision to invest in the stock market our psychology plays a very important role. Sometimes it helps in making a good decision and sometimes it makes us lose money and this remind us of the word “Psychological Traps”. Some of the psychological traps are as below:

Anchoring Trap
People get attached to some of their choices that have helped them to earn huge profits and want to continue with the same. The same happened with UTI mutual fund ‘Master Share’. So an investor should always keep a track of the financial products, rather than making impulsive decisions by getting attached to a particular company. 

The investors copy the trade setups by others which leads to an undesirable result. Paradoxically, the herding mindset is a key reason for the unnecessary boom in the stock markets. The mindset has deep physiological roots where the investor often ‘herd’ to safeguard their reputations and form the basis of their opinions on previous trends or following investors who had achieved favorable results with the same script in the past. Retailers are fast to offload these stocks owing to negative news of the company in the press or go for a buying spree if the stock does well.

Loss Aversion
It is when investors go the extra mile to avoid possible losses from their trades as the negative impact of a loss is far more than the happiness received from the profits. In short, it hurts more when you have a loss of hundred rupees than earning hundred rupees.
It is a physiological aspect where emotions often lead us to make decisions that help avoid the loss. This includes cases where investors take out their money when the market crashes or to avoid further losses the investor continues to hold their cash reserves even after a market correction. 
One thing every trader needs to remember is that not every trade in the stock market leads to them making profits, it is at times better to accept the losses and move ahead.

Superiority Trap
Having confidence is a positive trait concerning investing in financial markets however overconfidence often leads to setbacks for an investor. Usually, investors who are well educated and have a good sense of functioning of stock markets and finance aspects of businesses tend to believe that their knowledge level is far more than an average investor in the stock market and thereby choose to take investment decisions.

We should always make a point that stock markets are working on a very complex model which gets impacted by various factors which are not under the control of a single person. So many investors have lost big fortunes in past because of their overconfident attitude and not listening to experts' advice. This is the riskiest form of negligence. 
Physiological traps grip every investor from time to time. The only way a person can avoid them is through keeping themselves informed of the latest updates in the market and be open to advice from industry experts as their experience can also help a lot. The key is also to take unbiased and informed decisions hold the mantra for success in financial markets.

Author's Bio: 

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