🧠 Does Your Brain Deceive You in Trading? 🧐📈
Today we unveil one of the most dangerous cognitive biases that affect every trader: the Confirmation Bias. This brain phenomenon explains why sometimes we "see" what we want in the charts, ignoring the reality of the market.
What Is It and How Does It Affect You?
The Confirmation Bias is your brain's natural tendency to seek and prioritize information that confirms your pre-existing beliefs, while dismissing or minimizing information that contradicts them. In trading, this is fatal. For instance, if you just bought Bitcoin, you will only notice news or analyses that predict its rise, ignoring warnings. Or you might cling to a losing trade because you "believe" it will recover, overlooking the exit signals from your own strategy.
This bias arises because your brain seeks efficiency: it's easier to reinforce a belief than to reevaluate it. Moreover, confirming your ideas releases dopamine, a reward that reinforces this behavior, creating a vicious cycle.
Protect Your Portfolio: Combat the Bias
* "Try the Opposite": Actively seek arguments that challenge your position.
* Predefined Plan: Define your entry and exit rules BEFORE trading, and follow them blindly.
* Detailed Record: Objectively note your decisions, emotions, and all signals, even the ignored ones.
* Use Checklists: Force yourself to review all criteria of your strategy without omitting anything.
Recognizing this bias is the first step. Train your mind for objectivity and discipline, and give your portfolio a real advantage.
Cognitive Psychology and Behavioral Finance.
Ohana 💙
