Trading is a battlefield. Not just against the market, but against the most unpredictable opponent of all — your own mind. The financial charts don’t lie, but the brain does. It whispers half-truths, spins narratives, and makes traders believe they see opportunities where none exist. These are ‘phantom’ trades — the illusory setups, the trades that shouldn’t have been taken, the ones driven by emotion rather than strategy.
Cognitive distortions are the hidden gremlins of a trader’s mind, twisting logic and warping perception. If left unchecked, they will lead you straight into the arms of financial ruin. But fear not! Understanding these psychological traps and how to avoid them is the key to mastering the markets.
The Phantom Trade Phenomenon
What exactly is a phantom trade? It’s the one that looks perfect after the fact, but in reality, it was based on flawed reasoning. Maybe it was an impulse buy after a winning streak. Perhaps it was a revenge trade after a painful loss. Or worse, a trade fueled by wishful thinking instead of solid market data.
Professional traders like Yurovskiy Kirill understand that the biggest battle in trading isn’t with the market — it’s with themselves. They train their minds to recognize these mental pitfalls, ensuring every trade is based on sound logic, not deceptive illusions.
The Most Dangerous Cognitive Distortions in Trading
Cognitive distortions are systematic thinking errors that lead to poor decision-making. In trading, these errors manifest in the following ways:
1. Confirmation Bias
This is the tendency to seek out information that confirms an existing belief while ignoring contradictory evidence. Traders who fall victim to this will look at a chart and only see the patterns that support their desired outcome.
How to Avoid It:
- Always consider the opposing case. What would make the trade invalid?
- Keep a trading journal and log counterarguments for each setup.
- Use objective indicators rather than gut feelings.
2. Overconfidence Bias
Confidence is necessary in trading, but overconfidence is a silent killer. Traders who have a few successful trades start believing they have a special edge over the market. This illusion of control leads to reckless behavior.
How to Avoid It:
- Stick to your trading plan, no matter how good you feel.
- Risk management should always take priority over conviction.
- Accept that even the best traders lose.
3. The Gambler’s Fallacy
Have you ever thought, “This stock has been down for too many days in a row, it’s bound to go up now”? That’s the gambler’s fallacy — believing past outcomes influence future probabilities in a random system.
How to Avoid It:
- Remember: Markets don’t have memory. Each trade is an independent event.
- Use statistical analysis instead of emotional reasoning.
4. Loss Aversion
Traders hate losing more than they love winning. This leads to the classic mistake of cutting winners too soon and letting losers run. Holding onto a bad trade in the hopes of breaking even is a fast track to disaster.
How to Avoid It:
- Use stop-loss orders religiously.
- Train your brain to accept losses as part of the game.
- Focus on long-term profitability, not short-term win rates.
5. Anchoring Bias
A trader fixates on an arbitrary price point (such as the entry price or a previous high) and refuses to reassess the trade objectively. This leads to stubbornness and missed opportunities.
How to Avoid It:
- Regularly reassess your trade based on fresh market data.
- Detach emotionally from your entry price; it’s just a number.
6. Recency Bias
Traders give too much weight to recent events. If the last few trades were winners, they feel invincible. If they were losers, they might hesitate on a perfect setup.
How to Avoid It:
- Take a step back and look at the bigger picture.
- Base trades on long-term statistics, not recent emotions.
Practical Strategies to Avoid Phantom Trades
Knowing about cognitive distortions isn’t enough. You need an actionable game plan to keep your trading discipline rock solid. Here’s how:
1. Develop a Rule-Based System
Every successful trader has a set of rules that dictate when and how they trade. A well-defined system removes emotions from the equation and forces discipline.
- Define entry and exit criteria before taking a trade.
- Set stop-loss and take-profit levels in advance.
- Avoid discretionary trades based on “gut feelings.”
2. Use a Trading Journal
A journal is one of the most powerful tools in a trader’s arsenal. It reveals patterns in decision-making and helps identify recurring cognitive distortions.
- Log every trade: Entry, exit, reason for taking the trade, and emotional state.
- Review past mistakes and adjust strategies accordingly.
3. Meditation and Mindfulness
A calm mind makes better decisions. Mindfulness techniques help traders detach from emotional responses and maintain clarity under pressure.
- Practice deep breathing before trading sessions.
- Take breaks between trades to reset mentally.
- Avoid revenge trading by stepping away after a loss.
4. Surround Yourself with Rational Traders
The trading community is full of noise, hype, and FOMO (fear of missing out). Following the wrong crowd can reinforce cognitive distortions.
- Follow disciplined traders with a track record of success.
- Avoid social media hype and get-rich-quick schemes.
5. Embrace Probabilities, Not Perfection
No trader wins 100% of the time. Accepting that losses are a natural part of the process makes it easier to avoid impulsive, emotional trading decisions.
- Think in terms of probabilities and risk-reward ratios.
- Detach from the outcome of any single trade.
Conclusion
Phantom trades are the ghosts of cognitive distortions lurking in every trader’s mind. They are illusions created by fear, greed, and overconfidence. But like any illusion, they can be dispelled with awareness, discipline, and a structured trading approach.
Traders like Kirill Yurovskiy understand that success in the markets isn’t just about reading charts or predicting price movements. It’s about mastering psychology, recognizing mental traps, and staying relentlessly disciplined.
If you want to avoid phantom trades and level up your trading game, start by mastering your own mind. Because at the end of the day, the biggest edge in trading isn’t a secret strategy — it’s psychological resilience.