Kevin K_ Baker

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What is overconfidence bias in forex and why is it dangerous?

Overconfidence leads traders to overestimate skills and underestimate risks. After a series of wins, traders may increase leverage recklessly, assuming continued success. Institutions mitigate overconfidence with strict risk caps and compliance monitoring. Retail traders often confuse luck with skill, leading to blown accounts. Benefits: short bursts of confidence can aid decisiveness. Risks: eventual catastrophic loss when markets shift. To counter overconfidence, traders should review long-term performance, not isolated streaks. Overconfidence bias teaches humility—forex rewards discipline, not arrogance.