As a reminder confirmation bias is the tendency to like or seek out information that confirms what you believe. The reason confirmation bias is so dangerous in trading is that it can cause you to lose twice. By the time price or loss has proven your belief as wrong, it may force your belief into the other direction. For example, if your confirmation bias is short and the market rallies you lose on the way up and when market rallies you get long at the top. If your confirmation is long and the market rallies you lose on the way down and when the market breaks you get short at the bottom.
Signs confirmation bias may be a problem:
When it becomes too obvious.
There are moments when market direction and the timing is very obvious, it doesn’t happen as often as we think it does. It is most likely to happen when governments or another big participation tips their hand. As a trader you must be able to argue both sides at the same time and at all times. It does not mean you agree but you can never be blind to it.
When you stop seeking other information
When you feel like you do not need to see the other point of you view, you are in trouble. Once again it is important to see the other side of the trade, you already know what you think. You are subconsciously searching for your view as it is.
When you get annoyed hearing another view
If you get angry reading or listening to an opposing view not because of the logic or the argument but just because it is different. Every person has their time to be right, it is the nature of the market. It unfortunately give everyone ammunition.
As a trader you must constantly be sifting through information and anticipating. Under current conditions, confirmation bias exacts a more severe revenge. Above all, remember that you are the one who controls and are responsible for your results.
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