Confirmation Bias

 

Blog Post Media Test

Source: https://betterhumans.coach.me/cognitive-bias-cheat-sheet-55a472476b18

This story is a continuation from the blog post “My First Trade.”

All I saw were bullish engulfing patterns followed by the stock price moving higher. I would see a doji and say to myself “yeah, that makes sense, I would have sold there and made a profit.” I ignored all the times a bullish engulfing pattern appeared and the stock didn’t move higher.

Great, now I’m ready to trade. I deposit a little more than the SEC minimum $25,000 (for trading) into my Charles Schwab account and start “swing trading,” where I would hold stocks overnight for about a week on average. I read in multiple trading books that limiting losses is extremely important, so I put in a stop loss order (automatically sells my stock at a predetermined price), and waited about a week. I quickly realized that this candlestick stuff didn’t work.

Key Takeaway: Try to look for things that DO NOT support what you already believe. Once I started doing this, I could see that these “obvious” patterns were not nearly as effective as I thought.