What is a Cognitive Bias?

What is a Cognitive Bias?

Cognitive biases are mental shortcuts that can distort judgment and lead traders away from objective decision-making. Recognizing these biases helps maintain discipline and adhere to a trading plan.

Common Trading Biases

• Confirmation bias: Seeking information that supports an existing view.
• Anchoring: Fixating on a price level such as an entry.
• Recency bias: Overweighting recent outcomes.
• Loss aversion: Holding losers too long to avoid realizing a loss.

Best Practices

• Pre-trade routine: Evaluate technical, fundamental, and sentiment inputs systematically.
• Debrief sessions: Identify which bias influenced recent decisions.
• Peer review: Discuss setups with trading partners for accountability.
• Continuous learning: Study psychology to refine emotional control.