In my opinion, the better definition is a biological one due to the psychological distinction is much harder to draw the line. Plus, the fact that "you feel like a man" or so with "women" basically come with gender roles or stereotypes or similar things: You feel like what you thinks girls would feel like, so you are trans girl if so. However, since anatomies shape how men and women produce value in society(for example, due to that males generally having more strength, there are more male construction workers, and due to that females are generally more compassionate, there are more female Elementary school teachers), not the other way, although everyone can say what they are with their freedom of expression, There essentially no difference with a trans woman and a femboy biologically unless a surgery is performed and anatomy has been changed.
I think that the motive for the second classification based on psychology, ironically, is based on social discrimination. In fact, I think there is no reason a boy should be mocked by doing a "feminine" thing resulting in him(now her) thinking she would have been a girl all this time. No. Male is not associated with strength nor female with compassion fundamentally, and I think society should be OK for calling a person by their biological definition apart from what they appear as, masculine or feminine. Reporting male on someone that looks, acts, and has hobbies in alignment in what we call "feminine behavior" because there is a penis and 2 balls should not be frowned upon. The male and female classification should be for what set of anatomical organs you have, and not an implication of what roles you serve in society, and you should not be pressured to do anything or not do something because of your gender.
It is crazy, that TERFs only add to this stereotype by not only excluding trans people but actually trying to distinct more from female to male. They are achieving the complete opposite of what they initially intended.