Confirmation Bias...067
With the recent upturn in the market, people are very enthusiast about a moon rally soon, however I have taken a step back and am waiting for the charts to hold above the 5k level for a substantial duration before making any rash decisions. I often get asked why, and the reason is because I’ve been hurt before by acting far too quickly, because of emotions and confirmation Bias, which is what today’s piece is about…
Confirmation bias is poison. This is the biggest reason why people just “hold” their way to the bottom and never capitalise on any gains or hold on to losing investments, waiting for them to skyrocket.
What is confirmation bias?
It’s when you only seek information that agrees with your point of view. This is extremely dangerous and very hard to avoid. You will always have some level of confirmation bias within you – it’s human nature. We want to be right, and hate admit- ting when we are wrong. Guess what? The market does not care about your opinion. Let me repeat that because it is so important…
The market does not care about YOUR opinion.
Many investors get trapped in communities that are created around an individual crypto; do you really think you’ll get balanced opinions in there? It is very important to follow a few sources that have completely opposite points of view to you and judge them from a neutral stand- point. Understand exactly what and why they are saying it. I follow several investors who HATE cryptocurrencies, and I completely understand where they are coming from in many respects.
I don’t agree with what they are saying most of the time, but at least I am aware. I always consider the reasons not to invest in an asset class or individual asset before investing.
In fact, I consider this the most important phase of due diligence. Find someone that dis- agrees with you, find the facts and evaluate your deci- sion from a neutral standpoint. This alone has saved me thousands of pounds.
Right before I was about to jump into a project because of the fear of missing out (FOMO), I would make sure to seek alternative viewpoints on that project, and I would often see red flags that have stopped me investing in many projects (thankfully).
When you form an opinion on something, you steer away from the unbiased facts, and twist information to match what you are thinking. Sometimes your belief will be right, and you’ll feel great.
Just know that you will be wrong, and sometimes it is better to accept the fact that you are wrong and cut your losses short than to try and wait to prove that you are right. Trust me, I’ve lost a lot of money in the past trying to do this. Being stubborn will only lose you money!
Tomorrow we will speak about trading emotionally and what you can do to prevent it (we are all human so there’s no way of removing emotions entirely).