Confirmation bias: Invisible obstacles in financial market transactions

Confirmation bias: Invisible obstacles in financial market transactions

Confirmation bias, as a psychological phenomenon that profoundly affects traders’ decision-making and performance, is that the core of the individual tends to seek information that is consistent with existing beliefs and automatically filters or despises information that is contrary to it. This cognitive bias seriously distorts the decision-making process of traders, causing them to rely too much on data that conforms to existing concepts, and thus fall into a biased analysis and decision-making framework.

The harm of this psychological phenomenon is that it may lead to misunderstandings of the market and decision-making errors by traders. What’s more serious is that when traders believe in a certain market trend, they may ignore other warning signals from the market and stick to their original positions, thereby increasing investment risks and even incurring losses.

If a trader is bound by his own inherent ideas, it will greatly limit his space for learning and growth. In the rapidly changing financial market, maintaining an open mind, constantly testing hypotheses, and gaining insight into market dynamics is the key to maintaining competitiveness and adaptability. Therefore, traders need to be vigilant about confirmation bias, examine the market from a more rational and comprehensive perspective, and ensure the accuracy and effectiveness of decision-making.