Mental models are tools used to explain the process and theory a person uses to understand how something works in the real world. It represents a system of principles that tries to explain the interrelated cause and effect of actions and results. A mental model represents the relation between intuition and reality and beliefs about the risks and rewards of actions within the parameters of reasoning about a process. 

Below is an Mental Models cheat sheet info-graphic with examples of 15 Mental Models all traders and investors should know. 

Here is a great free Mental Models eCourse created by Joe Marwood for the readers of my blog. –> Mental Model Free eCourse 

Mental Models

Image courtesy of decodingmarkets.com

By Steve Burns

After a lifelong fascination with financial markets, Steve began investing in 1993 and trading his accounts in 1995. It was love at first trade. After more than 30 successful years in the markets, Steve now dedicates his time to helping traders improve their psychology and profitability. New Trader U offers an extensive blog resource with more than 4,000 original articles, online courses, and best-selling books covering various topics.