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Here are 12 Cognitive Biases that prevent
human beings from behaving rationally. As perception is reality in the
financial markets, I thought it might be useful to address those issues through
the lens of a trader.
1. Confirmation Bias
This is a fatal flaw of trading; we tend to surround ourselves with information that validates our own point of view and dismiss input that conflicts with our reasoning (also known as cognitive dissonance). This is the primary reason why we always strive to see “both sides of every trade” as the residual grist between variant views is where education—and profitability—resides.
2. In-Group Bias
This is a manifestation of confirmation bias, or the tendency to surround ourselves with those who share similar takes on the tape. This could pertain to our physical environment or a virtual experience, such as Twitter. Not only does this provide a false sense of security in our individual viewpoints, it makes us suspicious—or angry—with outsiders who dare to question how we feel.
1. Confirmation Bias
This is a fatal flaw of trading; we tend to surround ourselves with information that validates our own point of view and dismiss input that conflicts with our reasoning (also known as cognitive dissonance). This is the primary reason why we always strive to see “both sides of every trade” as the residual grist between variant views is where education—and profitability—resides.
2. In-Group Bias
This is a manifestation of confirmation bias, or the tendency to surround ourselves with those who share similar takes on the tape. This could pertain to our physical environment or a virtual experience, such as Twitter. Not only does this provide a false sense of security in our individual viewpoints, it makes us suspicious—or angry—with outsiders who dare to question how we feel.
