Bias is Everywhere: How It Shapes Our Decisions and How to Navigate It

Happy Thursday, everyone! I hope you’re all doing well and easing into the day with a sense of purpose and positivity. As we navigate through our routines, I want to take a moment to ask you a question: When was the last time you made a decision that felt completely objective, free from any influence of bias? Take a second to think about it. Chances are, it’s harder to pinpoint than you might expect.

Bias is everywhere. It’s in the way we interpret information, the way we interact with others, and even in the way we make financial decisions. Whether we realize it or not, bias has a profound impact on our choices, often leading us astray when we least expect it. Today, I want to explore how bias affects decision-making, particularly in the markets, and share some personal experiences where bias led to some of my worst losses. More importantly, I’ll discuss how we can work to minimize its influence and make more informed, rational decisions.

How Bias Shapes Decision-Making

Bias is like an invisible hand guiding our thoughts and actions, often without us even noticing. In the markets, bias can manifest in countless ways. For example, confirmation bias—the tendency to seek out information that supports our existing beliefs—can lead traders to ignore warning signs that contradict their thesis. Similarly, anchoring bias can cause investors to fixate on a specific price point or piece of information, preventing them from adapting to new data.

One of the most common examples of bias in the markets is recency bias, where traders overweight the importance of recent events. For instance, after a string of successful trades, it’s easy to become overconfident and assume that the next trade will be just as profitable. This can lead to taking on excessive risk or neglecting proper research.

I’ve fallen victim to this myself. One of my worst losses came from a trade where I was convinced the Nasdaq would rebound simply because it had done so in the past. I ignored the deteriorating fundamentals and technical breakdowns, clinging to my bias that “it always comes back.” Spoiler alert: it didn’t. That loss was a painful but valuable lesson in how bias can cloud judgment and lead to poor decision-making.

How to Avoid the Trap of Bias

While it’s impossible to completely eliminate bias, there are steps we can take to minimize its impact. One of the most effective strategies is to form a story behind every trade or decision. This means asking yourself: Why am I taking this trade? What data—whether technical, fundamental, or otherwise—supports this idea? Equally important is identifying what would invalidate your thesis. Are there specific price levels, economic indicators, or news events that would change your mind?

Another critical step is to actively challenge your own assumptions. Before making a decision, take a moment to reflect on potential biases that might be influencing your thought process. Are you overly attached to a particular outcome? Are you ignoring information that contradicts your view? By acknowledging these biases, you can take steps to counteract them.

It’s also helpful to seek out diverse perspectives. Discuss your ideas with others who may have different viewpoints or approaches—this can help you identify blind spots and refine your thinking.

However, never assume that just because someone has a different viewpoint, they know something you don’t.

To End

Bias is an inescapable part of being human. It’s woven into the fabric of how we think, perceive, and make decisions. In the markets, bias can lead to costly mistakes, but it can also be managed with awareness and discipline. By forming a clear story behind every trade, challenging your assumptions, and seeking out diverse perspectives, you can reduce the influence of bias and make more rational, informed decisions.

Remember, the goal isn’t to eliminate bias entirely—that’s an impossible task. Instead, it’s about recognizing its presence and taking steps to mitigate its impact. As we move forward, let’s strive to approach our decisions with curiosity, humility, and a commitment to continuous learning. After all, the more we understand our biases, the better equipped we are to navigate the complexities of life and the markets.

I hope you find this write-up helpful, and I wish you an amazing Febuary.

To my traders: trade safely, manage risk, and live to fight another day.

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