It’s natural to create biases based on your personal judgments. This is innate like breathing and eating and can be reasonable or not. Normal activities like picking a school to go to or a restaurant to eat, you use biases and that’s not just you. Even in trading, you can look for trade opportunities based on your biases. This bias might be influenced by a headline that you recently found or a rumor that you heard.
Confidence is important if you want to stick to a plan in forex Trading. Therefore, being confident when it comes to your biases serves importance with risk management. If your trading plan is not going your way, be confident, and stick to it no matter what happens.
Using your biases is okay. But being irrationally sticking to your biases could create trouble on your trades. Economist Richard Thaler once introduced the “Endowment Effect”, which is a person’s tendency to “place higher value on the things that we own.” Humans tend to put a higher price on objects that they own. Nonetheless, we are loss-averse creatures.
The Endowment Effect is also particularly related to biases on Forex Trades. Traders tend to put a higher value on their biases because they are their opinion and they own them. Remember that in Forex trading, there are answers which can be right or wrong.
If you are someone who isn’t used to changing biases, you may want to try these exercises now.
1. Seeing your trade plan from a different angle.
As you research, you will see the different sides of Forex Trading. Most likely, you will want to support articles that give support to your biases. However, if you look in the bigger picture, you will see that it is more profitable to also listen to tips and articles that tackle ideas against your trades.
2. Reconsider your biases on a regular basis.
Placing your trades does not mean that the game is done. It is advisable to keep an eye on it because if your trade gets triggered, you might lose something huge. This is applicable especially if the trade market shifts quickly and often. You may read the news regularly, talk to other traders, or check your charts if it needs to be changed.
3. A trading journal is very useful.
Did you know that it is very effective to use a trading journal if you want to practice trading flexibility?
Checking your trading processes can provide you with the most valuable insights like where to get the most remarkable research, how much to gain or lose if you fail or when to invalidate your trade idea. Biases can be a good way to find a trade idea, but then, you must know that your opinion is not the only opinion there is in the market.
Remember not to stick to your bias in times of contradictory evidence. In forex trading, you must trade based on what you see and not what you think. Be flexible with your biases and trade wisely.