The YOU Factor – Behavioural Biases

So many times we hold a position for the wrong reasons; you enter a position for a particular hopefully valid reason and then the trade doesn’t bring the expected results. But rather than getting out of the position and moving on we hold on to them far too long. Our excellent trading strategy is replaced with

a) the hope that things will turn around and .

b) we get emotionally attached or ‘anchored’ to a certain price that we hope to ‘get’ back to again or at least to get out break even.

c) we justifying holding on to the trade with the old adage: “A loss is only a loss when the trade is closed” or we find new reasons why we could give the trade just one last chance to turn around

 What do all of these ‘reasons’ have in common? It’s simple. The “YOU” Factor! They have nothing to do with fundamentals or technicals, and everything to do with your psychology. The culprit really are those innate, subconscious behaviors also called biases in the neuro science world that evolution has equipped us with so that we stand a better chance of surviving.  I always wonder if the people who invented the stock market actually studied those biases (according to a bias is ‘An inclination or preference that influences judgement from being balanced or even-handed’) and then created the rules of the game in such a way that we are prone to fail. Those subconscious survival instincts for sure helped to survive when we were Cave Men, but in the world of trading these behaviors are capable of sabotaging us unless we are consciously aware of them and their impact upon our behavior.

There are plenty of decision-making and behavioural biases that even experienced traders fall victim to. So it is really important to be aware of when making trading decisions.

If you check out the Psy-Fi Blog you can find an endless list of behavioral biases.
Those biases describe a range of peculiar behaviors that we exhibit when we find ourselves in certain situations.  Unfortunately science is still a long way away from understanding those biases so for now all we can do is to be aware of them and noticing when they kick in. If you want to learn self-control then learning about those biases is a great step towards that skill.
I found this list on the Psy-Fi Blog: