Trading Risk Management Course Lecture 3: Confidence Trap

The more confident you are about a trade, the closer you are to a loss.

This is the most dangerous psychological trap in trading. Many people fall into it.

A typical sign of high confidence: doing your homework, looking at charts, analyzing fundamentals, then thinking about increasing leverage. "This will definitely make money"—going straight in with 5x leverage. But this is not a logical decision; it’s an emotional one.

The distinction is crucial.

The problem with emotional decisions is that your confidence level and your actual win rate are completely different. Market fluctuations, black swan events, overlooked details—any of these can instantly reverse the situation. And when you are heavily invested, a reversal means liquidation.

True risk management is not about research depth but about humility.

The most prudent traders are those who, even when optimistic about a certain coin, only hold a small portion of their funds in it, leaving the rest in reserve. They know that the market will teach you time and again that confidence itself is a risk signal.

Remember: the more homework you do, the easier it is to fall into the mindset of "I am sure." But this is precisely when you should reduce your position and leverage.