As a young investor, it’s important to understand that your own brain can sometimes work against you when it comes to making smart financial decisions. That’s where the field of behavioral finance comes in.

Behavioral finance explores how psychological factors and biases influence investment decisions and market outcomes. By understanding these common mental blindspots, you can learn to make more rational, well-informed choices with your money.

Here are some of the key behavioral biases you should be aware of as a young investor:

Overconfidence Bias

Many young people, flush with early investment successes, tend to overestimate their abilities and knowledge. This can lead to taking on too much risk and making impulsive decisions. Remember that even the most seasoned investors can’t predict the market with 100% accuracy.

Loss Aversion

Humans generally feel the pain of losses more acutely than the pleasure of gains. This can cause investors to hold onto losing positions for too long, hoping to “get back to even” rather than cutting their losses. Learn to be objective and disciplined about selling.

Anchoring Bias

We often rely too heavily on the first piece of information we receive. For investors, this can mean putting too much weight on a stock’s past performance or price, rather than its future potential. Avoid getting anchored to arbitrary reference points.

Herding Behavior

It’s tempting to follow the crowd, especially when markets are volatile. But blindly copying the investment decisions of others is a recipe for trouble. Think independently and resist the urge to chase the latest “hot” trends.

The good news is that by recognizing these common biases, you can take steps to counteract them. Some strategies include:

The field of behavioral finance may seem daunting, but understanding your own mental blind spots is key to becoming a more successful, rational investor. With the right mindset, you can overcome the biases that trip up so many young people starting out.