Thursday, 4 February 2016

It's not your fault that you are losing - 17 Biases that explain why traders make mistakes

The human brain is a fascinating machine. It allows us to do many things simultaneously without having to think about doing them. You can drive a car, have a conversation about a complex topic on the phone, eating a sandwich, observing your daughter on the back seat, while all your inner organs and body mechanisms do their thing; this all happens effortlessly and humans wouldn’t be able to consciously control what is going on anyways.

This is only possible because our brain uses shortcuts to process data and information automatically. Unfortunately, those shortcuts don’t always work in our advantage and especially trading and investing require a different skill set and way of thinking.

The automation of thinking and making decisions is done through psychological biases or heuristics. We compiled a list of the 17 most common biases and heuristics and show how they influence trading decisions.

“This is the essence of intuitive heuristics: when faced with a difficult question, we often answer an easier one instead, usually without noticing the substitution.” – Kahnemann

Source: http://www.tradeciety.com/

Quote for the day

“Inaction breeds doubt and fear. Action breeds confidence and courage. If you want to conquer fear, do not sit home and think about it. Go out and get busy.” - Dale Carnegie