Avoiding Cognitive Biases In Investing

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Say you develop a thesis that solar stocks should take off soon. And as soon as you create that thesis, you start to notice a huge increase in news stories and data that support it. This makes you even more confident in solar stocks.

This is most likely the bias in action.

Developing your initial solar thesis has you primed towards certain types of information. This priming is very easily confused with actual increasing sentiment towards the solar sector. Objectivity is once again smothered, making this bias crucial to avoid.

These cognitive biases are completely natural to have. And that’s what makes them dangerous. We need to stay vigilant of these biases to make sure they don’t creep into our analysis process. Objective analysis is the key to success in the markets. But for objective analysis to flourish, biases need to be squashed.

Stay tuned for the last article in our psychology series where we’ll discuss the solution to our faulty biological wiring. In the meantime, be sure to check out the Macro Ops Handbook where you can find out more about psychology in trading. Click here to access the Handbook.

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