The Blind Spot Bias: The Number One behavioral bias to tackle in Trading

Warren's Trading Titans

As a trader, no matter which market, we will come to the point to realize that trading is a mind game, much more than technical analysis, price action, indicators, etc.. The brain can be our biggest strength in trading, however at the same time can also be our biggest weakness. We are all victim to behavioral biases, which naturally lead us to certain decisions or actions that are oftentimes destructive to our trading performance.

While there are many biases that can explain a large share of traders decisions, there is one behavioral bias standing out. The Blind Spot Bias! In the process of working on your own psychological strengths as a trader, it is impossible to neglect this bias, as you can only move forward when being aware of and accepting this bias.

Before we deep-dive what the Blind Spot Bias is and how it affects our trading, let me share one thing about Trading Biases which I believe is extremely important, comforting, but also challenging all at the same time:

We ALL have behavioral biases, it is nothing we could have controlled early in life but we failed, so we have them now… It is completely normal to have behavioral biases, and we are not better or worse because we have or don’t have a specific bias. There is no point in artificially convincing ourselves in not having XYZ bias, because if we do, we ourselves are the main one to suffer from the impact, especially in trading. Many behavioral biases come naturally, sometimes based on millions of years of evolution.

But, and here comes the twist! It is extremely powerful to be aware of your own biases, acknowledge them, understand their impact on our own behavior, and take the necessary actions to prevent the impact if we derive the impact of that bias is negative. The Blind Spot Bias is a perfect example for this, so let’s dig-in what it is:

The Blind Spot Bias: What is it?

The Blind Spot Bias in essence says, that we tend to believe that we are less prone to cognitive biases than the people around us. So, while we believe that other people have cognitive biases, we less frequently see that we have them ourselves. As the name already suggests, we have a blind spot on ourselves when judging behavioral biases.

Biases are by definition unconscious, and the blind spot bias is formed by an introspective illusion, thereby leading people to believe that they are more rational and bias-free compared to others. Let’s not get too deep to the psychological roots of this, there are many available resources online which you can check, but let’s rather focus on how the bias will affect you as a Trader.

What does the Blind Spot Bias mean for traders?

If a trader does not acknowledge that he or she indeed has biases that lead to certain decisions in trading, that trader will never be truly working on these biases and flip them to their upside, but rather keep all those destructive trading patterns caused by them. There are many known behavioral biases and fallacies which provably have a strong impact on the traders’ behavior, the gambler’s fallacy, anchoring, conservatism bias, house money effect, overconfidence bias, recency bias, conjunction fallacy just to name a few (let me know if you would be interested in learning more about those), but the Blind Spot Bias is really your entry point to even start working on all of those.

As a result, the Blind Spot Bias should be the Number One bias you want to look at as a trader before looking at any of the other biases out there. Chances are high, that if you actually think that none of those biases apply to you, you are victim of the blind spot bias in this moment. Of course, our own thoughts and decisions based on those thoughts seem rational to us, we are the creator, we “know” all the connections, while we have little to no clue about those thought processes of other people. Neither makes the knowledge of those connections and thoughts ourselves less prone to biases, nor does our lack of knowledge of those thought processes from others them more prone to those biases.

What does this all mean to me as a trader?

Honestly, I would just like to encourage you to think about the blind spot bias, keep an open mind about your own biases, acknowledge them and start working on them as a way to strengthen your own psychology during trading. Other trading biases can be detected in your trading data, this is exactly what the hoc-trade AI does by finding the correlations between trading behaviors of thousands of traders, and the statistical significances to your trading performance, but the Blind Spot Bias does not apply to this. It is in a way overarching to all the other biases, and therefore as the title states, your Number One bias to look at.

Thank you for reading, happy trading, and stay safe!

Everything said in this article is only a personal opinion and should by no means be interpreted as financial advice!

Copyright reserved to the author

Last updated: 11/23/2023 06:44

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