Let us try to focus on a few important Trading Psychology Bias and not Technical Analysis that has been major reason for many traders or investors to miss out on current up move.
Fear of Missing Out (FOMO) – It is interesting to see that the rise seen over past few months have been not expected by a many investors who were expecting markets to correct. There were times when the momentum slowed down a few weeks back and we expected that the markets can pause and eventually reverse. But as soon as our 55 days’ Time cycles turned back positive near 11600 on 29th October 2020 we turned bullish again. Nifty was near 11800 since we have maintained our positive stance and as mentioned in many of webinars that a trader or investor should be prepared to change the stand with a blink of an eye if the technical picture changes. However, human emotions works in a different fashion and it takes time for most to change the views or stand. It is for this reason that even when the markets turned positive after the Time cycles lows were formed and we turned super bullish a few still were not able change their outlook given the strong emotional attachment to one’s view point. This is an important Trading psychological anchoring bias that hampers decision making ability.
Anchoring Bias a major reason for Trader’s FOMO – Anchoring bias is a cognitive bias that causes us to rely too heavily on the first piece of information we are given about a topic. When we are setting plans or making estimates about something, we interpret newer information from the reference point of our anchor, instead of seeing it objectively. The major anchor in this case had been Covid-19 pandemic. This is the very reason why majority of the traders or investors cannot change stand as the rally had been against their original view point and illogical behaviour of markets as per their logical understanding of mind.
Self-Attribution Bias – Now due to this Psychological trait and limitations, Anchoring Bias triggers other set of biases and Self Attribution Bias which is responsible for majority of the traders not in the game. Attribution bias is a long-standing concept in psychological research, with the theory first explored in the late mid twentieth century. Austrian psychologist Fritz Heider found that in ambiguous situations people tended to make attributions based on their need to maintain their viewpoint and self-esteem. Many investors and traders hold the view that investing is a kind of art which requires sophisticated skills and knowledge. It is not surprising that they tend to credit any success in their trading experience to their own individual skills and abilities. However, when things go wrong, they want to “defend” their abilities as trading professionals by putting failures down to external events beyond their control, or simply to other analyst, advisor or Covid-19 in this case. This is a dangerous behavioural pattern. Traders must avoid the trap of falling prey to their own ego rather than insisting on rational thinking and decision-making.
Get Solution for this bias – in our recent Monthly Research Report which has combined studies on various indicators in technical analysis, Elliott Wave and much more…
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