Trade Aptitude
Yesterday’s results: No trade triggered.
Today’s Best S&P Futures Turning Points: Buy 5701.50 stop 5695.75. No short suggestion.
The World Index: (+100/-100) rises from -40 to -17 with sentiment mixed leaning Bearish. China closed for a holiday week.
Catalysts: Jobless Claims @ 8:30. S&P Services PMI Final @ 9:45. ISM Services PMI, Factory Orders, Fed’s Schmid @ 10:00. Fed’s Bostic @ 10:40. Middle East tension.
Quick Tip: Obscure Biases
Once you’re introduced to the psychological side of trading you find that we all have biases that affect the quality of our decision making.
Some are well known like Outcome Bias (judging the trade to be good because it was a winner, not because you executed properly) and Recency Bias (the tendency to weigh recent events more than earlier events).
I became fascinated with biases and wanted to search for obscure examples. ChatGPT helped. Here are a few that traders should be aware of to improve their performance.
Bandwagon Effect: The tendency to adopt beliefs or follow trends simply because many others are doing the same. Traders may buy or sell assets just because others are doing so, often without a rational analysis of the fundamentals. This can lead to bubbles (buying during a hype) or panics (selling during a downturn).
IKEA Effect: The tendency to overvalue things you have created yourself, regardless of the quality. Traders who have done extensive research or created their own models may become overly attached to their conclusions. Even when evidence suggests the strategy isn’t working, they may hold onto their ideas, resulting in emotional trading and potential losses.
Endowment Effect: The tendency to overvalue assets simply because one owns them. Traders may hold onto losing positions longer than they should because they feel emotionally attached to them. They may also overestimate the value of their portfolio, making it harder to sell at a loss when needed.
Dunning-Kruger Effect: The cognitive bias where people with low ability at a task overestimate their ability. Inexperienced traders may believe they are more skilled than they actually are, leading to overconfidence, taking on too much risk, and eventually suffering significant losses due to their lack of knowledge or skill.
More to come. For now, I’m reviewing my trade decisions related to any biases that I may have had. This should bring my journal to a new level. Try it!
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Trade Fearlessly,
Mike Siewruk
P.S. Feel free to pass this along to your trading buddies. Share in the wealth!