confirmation bias a really sneaky little problem that affects lots of traders and not only traders it impacts people throughout their entire lives so in this video what I'm going to do is explain to you what confirmation bias is and then I'm going to give you some tips on how to overcome it when you are trading so confirmation bias basically stems from the propensity for the human mind to look for facts figures wherever it may be that line up with our pre-existing beliefs now you can see confirmation bias on pretty much any facebook posts that you
go onto so if you go onto our Facebook post there's always people arguing and they're always arguing for one side of the argument or the other side and they are completely certain of their own argument and what they do is they post things that line up with their beliefs the NSA does the exact same thing and neither side is willing to compromise it doesn't matter what this site says because this site will never change their might and it doesn't matter what this site says because this site will never change their mind and that is because
they are stuck in confirmation bias so what is that going to look like when you are trading so think back to a couple of different scenarios the first one is you look at the trade setup you convince yourself it's a terrible trade setup I don't want to take this trade set up it doesn't look right you say okay I'm just gonna sit back and I'm going to ignore it and then the trade works oh absolutely perfectly after it completes you say that was a good entry no worse than that for me personally anyway is when
you are looking at rate you take the trades and then as soon as you enter that trade or as soon as the trade starts to move against you a little bit you start to get that wave of panic and annoyance on yourself because you start thinking you know what this was not a good trade entry but what you've done is you've convinced yourself while you're looking at the chart that it is a good trade entry because you're using confirmation bias and then that disappears the instant you enter and usually what happens is you end up
having a loss it's absolutely one of the core problems for traders it happens over and over and over again now I tend to find even if you've been trading for a long time it can start to come back it starts to come back for me if I have lots of wins in a row if I start to have big runs of winners I really need to focus on my confirmation bias otherwise I start to take dumbass trades and I start to have unnecessary losses and then usually I have the loss and it sort of resets
me but my aim is to go for as long as possible fighting back the confirmation bias so how do you do that one is a couple of different ways when you are looking at your setup let's say you're looking at your trade setup and you're convincing yourself it's a good trade what tends to happen is you start to get this tunnel vision and you start to just focus straight in on the charts and there's all these little things will off in your head maybe over one with this or what with that but you start to
push them aside and you just start to focus and you're already setting up your order maybe as you're setting up your order the market is doing something else the candle is changing and really that's one of the things that should invalidate your entry but it doesn't matter because you are on this train now and it's racing along the tracks and it's getting toward you taking the trade and eventually you hit the end of the trade it triggers in it moves against you and then suddenly everything clears and you think oh what have I done this
is not a good setup so how do you avoid it well the first thing is you approach the trade differently if you're looking at the trade and you're thinking okay this is looking like an entry you start off by looking at the negatives what is the things that are going against this trait now you can do that yourself you can also if you've got someone in the house with you before you get into a trade you can have them help the reason I'm saying that is because I told my girlfriend her confirmation bias about a
year ago because she's learning a little bit about trading the more she sort of sees me doing it the more she's picking up and she started to enjoy the process of learning so I was teaching her about confirmation bias now what happens every type of setting up a trade she is there beside me saying what are the negatives for this trade are you sure about this trade it's what about that what were this I've literally got another voice in my ear helping me with confirmation bias no but the main thing you're doing is you're focusing
on the negatives it's very easy to get into that sort of tight stomach you know your ear and really focus and you're thinking oh I need to get this straight because if I miss it I'm maybe going to miss some money instead you should be approaching it in terms of what are the negatives okay yes it's testing my support and resistance level yes it's looking like an entry candle but maybe this swing points too close maybe at the start of the day I decided this isn't really a very good level to buy or sell from
maybe you're looking at and you're thinking and there's news release coming and it's a little bit close to my entry maybe it's too late in the date you don't usually trade at this time of day whatever it may be you have to add them up stack them up and then when you start to stack up the negatives it becomes a little bit easier to then compare it to the positives because you've already got both sides of the argument then you're not just looking at the positives you're not just allowing your confirmation bias to drag you
into this trait so you've got your negatives and then you run through the positives and then you wait up okay well I've got these things working against the trader but these things going for the train is this still a good entry maybe it's yes maybe it's not but it's allowing you to make a decision with the facts on the table it's really really important your trading plan should already tell you if it's got this and this I don't want to take this entry and by forcing yourself to run through the checklist it's forcing yourself to
not get sucked into that sort of ignorance of the other side of the argument so think back to your facebook posts when people are certain of their arguments they're not interested in the facts coming from the other side they just want to force forward their argument and that's it by forcing yourself to look at both sides you're doing it a little bit differently you're weighing up the arguments and then coming to a good decision and what it will do is it will help you start to pick better traits when you get into the trade if
it moves against you instead of feeling awful you'll start to say to yourself I'd already weighed this up I already know this is a good entry if I lose this trade it's just part of my trading plan and I can not good about it because it doesn't feel good losing but I can't accept the loss if you watch the other videos about the Kinect for you can put one of the yellow characters into your Kinect for even if you have a loss now the other side of the coin is when you are convincing yourself it's
not a trade this is just as bad in the long term a lot of people sort of they think about this in the wrong way they think about okay and missed a really good trade but at least I didn't jump into it and there was a loss not the right way to think about it if you are skipping good trades you are hammering your probabilities with trading every good trade you miss takes away a winning trade from your month's results and what's it doing it's leaving the losses in its place you're still going to have
the losses but all you're doing is you're chipping away at the wins chipping away in the winds because you're convincing yourself this isn't a good trade I really shouldn't take this so again confirmation bias it's not a good trade I don't want to take it all but look at this look at this it's telling me it's not a good trade you have to also run through the positives what are the reasons for this trade this was a key buy zone for me today it's a really good level of support and resistance I've been watching it
for weeks it's a signal candle that I look for it's got a really good distance to where I think potentially the next level of resistance is it's given me a really good potential risk to the wart so what's holding me out of this trade I'm feeling a little bit nervous I don't really want to take the trade I've already had a good trade yesterday maybe I don't need another good trade and by forcing yourself to look at it you can start to say but these aren't really solid reasons this is a good entry and it
can force you through it can force you to change your confirmation bias and start to look at the facts and start to make educated trading decisions and what it will do is it will stop you from taking or something from skipping good trades really really important that you look at both sides of the trade before you get it because confirmation bias can decimate you as a trader and unless you're willing to face the problem you you're never really going to learn so what I found over time everything I saw bring to you guys is things
that I've learned personally through trading through a lot of reading a lot of research but also through the traders who I have watched the gold from beginner to consistently profitable the ones that I am regularly in contact with us those obviously I'm like contact with every single person but the ones come in contact with regularly who have done that step from beginner to consistently profitable it's the same exact things that I weigh through that they go through confirmation bias is a really really important one it's in all walks of life but also trading it's not
the intelligent people who succeed it's the people who are willing to adapt they're willing to change and they're willing to learn it doesn't matter how intelligent you are how expertly you can learn a trading plan it comes down to starting to deal with your own issues your own mental issues your own psychology because in every walk of life it's it's your psychology and it's your personality that allows you to take the next step you know unless you're in school just sitting exams when it starts coming time to implement things it comes down to you personally
how you can take the information you've learned and then how you can implement it successfully under stress under pressure especially as a trader so confirmation bias is something i really suggest you look into hopefully those tips are gonna help you make better decisions when you are trading as always guys I hope this video was helpful hope you're all having a good trading week a good trading February a good start to 2019 I'm James R and thank you [Music] you
