According to this description I suffer from "confirmation bias" I have been caught a number of times even though I'm aware of this and that makes me pissed when I realize it happened. With confirmation bias altering your perception, you’ll tend to focus on information that is telling you that you are right, and so, you’ll become oblivious to the fact that the market is trending against you. If anyone has a cured themselves of this, please share your input or exercises for overcoming.
Possibly what often rectifies perception bias is intense pain. Once you have felt enough pain of being wrong over a number of occurances, one becomes cautious, hesitant, even fearful. Then you will tread more cautiously into the future. Having false biases results in failure, failure results in pain, pain teaches us lessons.
I have a friend who is a doctor and she has on a number of occasions questioned me on trades I placed (I share them with her since, I am also, mentoring her) and asking me one question after the other. Now, I say, long before your reach your 100th question, the trade would have been over. It would have either been profitable or a loser but, you were not part of it! So, you missed out! I added, it is a huge waste of time and energy to hyper analyze one trade. All you need is a confluence of factors favoring you getting into such a trade. So, what factors? Price is moving to a support area, candlesticks showing a change in sentiment from downtrend to uptrend, major trend of the stock is still up. That would have been enough reasons for me to go long a stock. You do not need 100 reasons like my friend does. Huge amounts of energies and effort wasted for nothing and does not make you a better trader! You just need to accept the fact that you cannot know everything before you get into a trade. Either you get in or you stay out! If you are asking yourself, 100 questions, do not get into the trade! Stay out and save your capital. Here is a tip. When looking at a stockchart, our focus is near term for a good low risk entry point. However, move back and look at the bigger picture which is the whole stockchart in front of you! The major trend matters, of course. Trade in the major direction of the stock trend. 90% of the time, you will be right without beating your head about it!
Over 30 years ago I started getting hypnosis, it helps in some areas pertaining to trading and not at all in other areas for me. I had to stop thinking in terms of right/wrong and change it into probabilities and percentages. The numbers were getting too large for me to handle in terms of loss, so percentages were much better and kept me risking smaller. Being right or wrong is society's terms for normal responses of normal rules. What was done 100 years ago, today some would be put in prison. In order to prosper in trading, I know we must take a mirror and trade in the mirror, mostly do counter to what makes so very hard to break, but goes against being rational. @themickey has it very correct, PAIN is best teacher. You can get cured of your thinking in a week or a month. You know what a tens unit is? Electrical simulation devise you apply 4 electrodes to an area and depending on level of pain, set it at 3-5 for fifteen minutes and takes the edge off for awhile. Have your wife/GF sit next to you when trading, attach tens unit to inner upper thighs and she has the controls, should you go against your rules, she allowed to use "15" level for 3 seconds, it will be the 3 longest seconds in your life. Pain is good for quick changes, hypnosis might take a year or not at all. And yea, am not normal, am a trader. LOL
I get angry when I make a dumb mistake like killing a winning trade or not having a big enough stop on a winning trade. Also, not letting a winning trade go for more profit. I notice that the last 3 days, all my winning trades could have made more profit. I need to stop having the fear that I need to get out of the trade quickly or it will reverse to a loss. If my trade is a winner, it will go to at least the 1st resistance if a long or the 1st support if a short. If its a bad trade, it will go to my stop anyway. Also, I need to not chase a trade if price already made a strong move, instead wait for a pullback.
Hello to all that replied and thank you for your input, I decided to quote themickey's post as I truly believe that pain is the ultimate teacher as is mother market. I think all that's left to do is make a firm commitment to change and be more aware of this bias when it starts rearing it's ugly head. I had a suggestion from an outside source to auto-mate my entries, it has merit.
I found a way I like to trade rather than the latest and greatest holy grail. I do not make as much as many of you and I carry higher drawdowns but I do not get angry anymore... ES P.S. I cannot stress enough that the method that you use must fit like a good shoe...or you will get bored...angry...etc..well actually bored is ok...as trading becomes mechanical after a while. Why do you think that I post with traders here...it is the only contact I have with the outside world
I've been trading maybe around 35 years (not full time but extensively on stocks) and if by automation you mean selection, that is you allow your algo to decide entry signals and to take those entry signals, unless you were high frequency scalper, would not suggest this was ideal. The exception would be if you had a super computer, a super algo and very strong coding skills, ie at a very high professional level. A retail trader struggling at still the experimental stage I doubt could attain this. Your best bet would be an algo finding contenders, then discretionally making the final buy/sell decision. Automating the broker connection to finally place the trade shouldn't be too difficult though to implement.
It's the classic "I'll see it when I believe it" and everyone suffers from it to some extent. Paradoxically, the smarter and the more knowledgeable the person is, the worse it gets. Case in point, today I was listening to a podcast interview with Burt Malkiel and in the middle I realized that he, while being one of the smartest market economists in the world, suffers from a really bad case of confirmation bias. I can't claim to completely conquer it in myself, but found an interesting gimmick to deal with it. Instead of binary right or wrong, it helps to think in confidence intervals. In that case, as new evidence arrives, you adjust your degree of certainty without damaging your ego. PS. As a side effect, thinking in continuous terms will also change your concept of risk management