Trade Ideas Blog
How to Hack Confirmation Bias
Feb 21, 2018
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This is a guest blog post from Alexander Voigt of daytradingz.com. Alexander’s been an active Trade Ideas subscriber since 2009. He interviewed Dan Mirkin, CEO of Trade Ideas, in 2017, and you can read the highly interesting interview on Alexander’s website daytradingz.com
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As soon as investors go deeper into the information about a company, they’ve already made a certain kind of a decision; they think that this company may be interesting. However, the conclusion to see this company as being “interesting” is no sufficient reason to invest money and to buy stocks immediately.
So, as investors we are searching for some kind of a confirmation to prove our thoughts and our feelings. We want to be completely sure and that’s the reason why we start with an investigation by making an analysis.
During this process many investors believe that it is not enough to have a close look at the most important key figures and to compare them with a benchmark or to examine the business model. They prefer to analyze certain business divisions to give them points on self-designed scales or they use the tools like technical or fundamental analysis.
In many cases this leads to the same result, a feeling that our original opinion has been confirmed. And it is a good feeling to see that we have been right from the beginning.
Now we believe that this company is worth it to invest money in it.
But unfortunately, there is still a problem that should not be ignored. Far too often we tend to pick and interpret information in a way that will fulfill our own expectations.
At this point, the “confirmation bias” has struck.
Very often this is the reason why a self-made, manually done analysis leads to losses. The self-overestimation of our own abilities in analyzing, partly being based on “fundamental or technical analysis,” may cause serious problems.
Instead of searching for testimonies against our original feelings, we believe that every further research and every additional piece of information leads to a new proof for our own opinion.
This means that investing more time for analysis and for research does not automatically lead to better and more useful information.
So, the “human error cause” has hit again. Luckily, this may be solved in a much more successful way.
New and advanced technologies, like the ones that Trade Ideas offers, are giving private investors the possibility to gain a purposeful computer-based analysis—for example analyzing more than 6.500 stocks and hundreds of key figures in real time. With a mouse click Trade Ideas will analyze the stock market with the help of previously defined filters or by using the help of artificial intelligence.
Even if given an entire year, it’s impossible for any private investor is to analyze 500 different stocks—and this even with uncertain results—while Trade Ideas’ artificial intelligence engine HOLLY does not even need one single evening to analyze millions of datapoints.
Every investor who feels that the things mentioned above apply to him should better start thinking about, at least, automating a part of his investment decisions.
Today it is simply out of date to analyze the markets in a manual way, especially when we consider that far too often private investors are falling behind when we compare our decisions with the investments of institutional investors.
If you keep in mind that most of the institutional investors are using high-quality procedures and methods, it will be easy to see the connection between the automation of the selection processes and the results of the performance.
Instead of wasting a lot of time with reading annual reports of certain companies and manually analyzing charts, it is highly recommended for investors to use this time to enjoy the nice things in life. The time has come to let computers do the work and to catch up with the institutional investors.
Trade Ideas can make this happen. The brand new Trade Ideas eBook “5 ways to win in a post BTFD market” is a good starting point and it is available for free: CLICK HERE TO DOWNLOAD THE EBOOK NOW
Always remember, a few successful trades within a short period of time and with spare-time in between are much more valuable than it may ever be to follow price developments and to study charts all day yourself.
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