A TRADER'S LIFE 79 | How to overcome the dangers of bias in trading
About a year ago I got to know and like a guy who had been trading for about twenty years. I enjoyed chatting with him about trading. Then one day, he proposed trading a small fund on my behalf. The arrangement would entail his taking a cut of the profits, if any, and while he was trading, he would happily teach me how to read the markets. Sounded good to me.
We got off to a positive start. Oh, dear, how often that happens in trading, right? The markets were turning bearish - and choppy, I should add. He was convinced the indices were about to collapse, the Yen would roar back to life and we would be, if not rich, then sitting pretty.
His analysis was very convincing, well argued.
It just happened to be wrong.
He held on to it. Even as the indices pushed through the 200 EMA, he was telling me the bears would regain control any day now.
They didn't.
And so the account was reduced from £2,000 to £2 in under three months.
It was disappointing. More so that he didn't think to call me up to apologise, as you might expect, given all the talk about turning me into a successful trader.
Perhaps he was embarrassed, but still.
So, he just disappeared. and I licked my wounds. I felt foolish. I hadn't been scammed, I'd simply let myself be carried along by someone with experience (and audits to prove he'd been successful) and told myself, 'It'll be alright...It'll be alright...'
The dangers of bias.
There's a guy I work with who deals in forex. He has a client who recently blew a few million, shorting cable. A few million. So he's a rich guy, who must be pretty smart to have made so much he has 20 million casino money, and yet, when it comes to trading, he's not so smart.
This wasn't his first attempt at shorting the British pound, apparently. It would seem he had a bias against the pound, possibly something personal.
There's an interesting thing about bias. It's actually a form of hubris. Deep down, guys like the two just referenced can't wait to show the world they had it right when everyone else had it wrong. They want to be George Soros shorting the pound. And I get it. Wouldn't it be nice, if we could all pull that one off?
But when you make it personal, when you refuse to revise your plan even in face of evidence to suggest you have it wrong, you aren't trading anymore, you're putting your ego out there, your hand cupped to one ear in anticipation of a collective gasp and the pop of a Champagne cork.
having interviwed a lot of traders now, I'm surprised how many traders still fall prey to bias.
Beware of bias. Listen to episode 79. Thank you.
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