Confirmation bias is a propensity to look only for the information that confirms the beliefs that a trader already has. For instance if it is believed that the price of Nifty is going to go up, he or she will look for the news, the technical indicators and the fundamental factors that support that belief.
Risks of Seeking Confirmation
Traders who over-actively pursue confirmation of their beliefs tend to miss key warning signs that would normally have protected them from unnecessary losses. In an attempt to build a case for their beliefs, traders miss the facts. Ultimately, this leads to them fighting trends and losing money with each ill-conceived trade.
Overcoming Confirmation Bias
Though traders seek as much confirmation as possible to enter a right trade, they should keep their senses open to contradicting indicators and variables. They must look at all factors factually and not emotionally. This will prevent a bad trade that occurs from selective perception.
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