PostHeaderIcon Psychological Biases in Your Trading

When engaging in the art of futures trading, the traders usually have to go through a lot of challenges. Aside from the market and other external forces, there are also certain challenges that have to be faced closer to home.

Among these are the psychological biases that most futures trader may find themselves in usually when they first start out in this kind of market. These biases can play a big role on their trading behavior and its influence can sometimes cause mistakes that can heavily take its toll. Here are some of the more common biases that many futures traders may find themselves believing in.

Anchoring Bias

Anchoring bias is based on the belief that many traders have that the future of the market would just be quite similar to what is happening at the present. This bias can make many traders believe that the current situation will endure and continue on over the next year and the year after that. This can greatly affect how some traders may see the changes that may actually happen in the future. Having this bias, they might turn a blind eye on possible reversals at the futures market based on the indicators and neglect to work upon such possibilities.

Overconfidence Bias

Many experienced traders can sometimes fall into the trap of becoming too overly confident on their own skills and storehouse of knowledge in the market. The overconfidence can sometimes prevent them from trying to learn new things and considering the changes that may happen in the futures market. In this case, traders may be suffering from a bout of the overconfidence bias.

Loss Aversion Bias

This bias is based on the theory that the perception of damage and ensuing pain caused by a trading loss can be greater that what a trading gain or profit may offer. In other words, traders can become too fearful of possible losses more than possible gains of a similar nature. With the loss aversion bias, futures traders are more likely to hold on longer to their losing positions rather than accepting a possible loss by trading and move on to other more profitable trades.

Confirmation Bias

Confirmation bias is based on the fact that some traders would selectively look for information that establishes their initial belief and use what they find to further confirm that they are right. Traders who usually try to look for data on the futures market that would confirm their belief that their stake on a certain futures trade would likely go up can sometimes take a blind eye on the warning signs that may be present telling them that they are wrong. That is just one of the dangers of a confirmation bias to a futures trader.


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