Confirmation Bias and Trading

David BlairDavid Blair, General Comments, Guest Blog, Trading PsychologyLeave a Comment

******One blogger/trader/educator who does a wonderful job of sharing research on elite performance and how it relates to trading is David Blair, The Crosshairs Trader. Below is his latest post for the SMB Trading Community. We hope you enjoy!****** — Editor’s note

When it comes to trading, enhancing our performance inside the charts requires an awareness of various “outside the charts” thought processing biases that can adversely affect our outcomes. Like all biases we may not be aware of their effects until an emphasis is placed on getting to know ourselves better. Fortunately, we have at our disposal much research conducted about our biases. However, mastering our thought processes requires that we face our weaknesses head on. One such weakness is the tendency to only seek out information that confirms our beliefs, thus blinding us to other alternatives and, in many cases, the truth. This is known as confirmation bias. For example, a trader who is in a losing position will seek out any information, be it news-related or indicator-driven, that confirms that he is right and the market is wrong. Oftentimes, this will lead to greater losses as reality trumps biased expectations. For those who wish to face confirmation bias head on the following sources should help on the road to discovery and enhancement. 

How The Oracle Of Omaha Avoids the Confirmation Bias Trap (Forbes

According to Jason Zweig the Mind is a Terrible Thing to Change (WSJ)

How to Lose 2 Million Dollars Through Confirmation Bias (The Stock Sage)

The Science of Not Believing (MotherJones)

Confirmation Bias is All Around Us (PsyBlog)

Confirmation Bias is Really Bad For the Investor (Practical Stock Investing)

How Traders Can Avoid Confirmation Bias (TradersPlace)

Stock Message Boards Are a Breeding Ground for Confirmation Bias (JaeHong Park—White Paper

Check Your Probabilities at The Door (YahooFinance)

Your Need to Win Is a Symptom of Confirmation Bias (TraderFeed)

David Blair


Related blog posts:
The Eight Principles of Elite Traders
Enhancing Performance With Bias Awareness

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