A bias can be highly detrimental to trading, causing poorly positioned trades and missed opportunities.
It can trigger mental and emotional events that raise stress levels and can make any situation go from not so good to terrible in a flash.
Smart People & Denial Sometimes, even very smart people can be in denial.
Several years ago I went with a group to Atlantic City, NJ to watch a friend run a marathon.
Except for me, my friends were all Harvard graduates.
They were definitely smart.
I had a grand time driving down to Atlantic City with these clever people.
When we arrived, we began looking for the Flamingo Hotel where we had reservations for the night.
Oddly, though, we were having difficulty locating our position on the road map (this was before GPS navigators).
None of the streets matched our map.
So we went a little farther, thinking that soon, we would identify a street and our location.
After about a half hour of aimless driving, someone cheered as we turned the corner and saw the Flamingo Hotel.
Problem solved, we thought.
This hotel was on a different street than stated on our reservation card.
How could this be? One of the Harvard grads had a solution.
"There must be two Flamingo Hotels in this city," he said.
Using the Wrong Map As it turned out, the marathon was not in Atlantic City but Asbury Park, a seaside town about an hour north of Atlantic City.
My smart friend never checked the race material - he just assumed the marathon was in Atlantic City.
So confident in this belief, he had all of us denying what any objective observer could plainly see: our map was not a street map of Atlantic City, but of Asbury Park! It's easy to have an idea and hold tenaciously to it even when the evidence is telling you differently.
Traders are subject to it every day.
Holding onto a bias is like using the wrong road map to navigate.
You just spin your wheels.
What to do So how can traders help themselves to know when their bias is wrong? The best way to avoid holding onto a bias is to anticipate.
Let's say you want to be a buyer in tomorrow's market.
That's great; you want to look for buying opportunities and you should map out where those opportunities are likely to develop.
But, you should also build flexibility into your map for tomorrow.
Anticipate that the market can go either way.
Anticipate ahead of time what it would look like if the market did not rally tomorrow.
How would it look if your bullish bias turns out to be wrong? What would tell you the market is going sideways and you should stay out? And, where would you find a short trade if the market begins selling off? Trading psychology helps you build mental flexibility and allows a wider range of responses to the market, not just a one-sided bias.
Anticipating various scenarios is one of the trading psychology skills traders can build to stay flexible and keep from becoming fixated on a market direction.