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Biases can not be eliminated they can only be controlled by being self aware. Control these four biases and you will be a better trader !

Confirmation Bias

It’s a natural human tendency to gravitate to the information that tells us what we want to hear. What we see is something between objective facts and what confirms our beliefs. This is known as confirmation bias.

Let’s suppose that I was a bitcoin maxi. Confirmation bias would lead me to only follow people that support my views about bitcoin and shun others views who hold altcoins.

You can avoid confirmation bias by seeking out contrary opinions even if it makes you uncomfortable. Try to understand the rationale behind differing opinions. Consider the opposite perspective and put your opinions to the test.

Overconfidence Bias

The tendency to hold a false assessment of our skills or trading strategies. It’s the egotistical belief that we are actually better than we are.

The irony in this scenario is that we as investors are predisposed to take a nostalgic view of past winning trades and tend to forget about past losing trades. We naturally tend to have stronger memories for positives outcomes versus negative outcomes. Any trader putting three winning trades together in succession is going to begin to feel pretty good about their trading strategy. This may be a good thing for our mental well being and ego but it will also lead to overconfidence bias.

Realize that the majority of people ( probably including you ) think that they are above average compared to their peers whether it’s related to driving , work skills or investing. Be honest with yourself about your trading skills and ability.

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Herd Mentality

Herding is observed when investors imitate other market participants instead of using our own judgement. Many times this logic is irrational with individuals thinking they have less information than the group of investors as a whole.

Many people who know very little about investing rely on the herd to provide them with information about investment opportunities.

WallStreetBets is an interesting community you can find on Reddit. Most posts will contain emojis and memes along with bits and pieces of information pertaining to a stock or crypto . It’s no secret that many in this community will openly admit that they know very little about what they are investing in and are simply following the herd and throwing money at what is being discussed the most.

How can you avoid the herd mentality ? By doing your own research. Follow successful investors and exercise patience. It’s okay to follow a trend but don’t chase a pump .

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Unit Bias

This bias is the irrational perception that owning whole units of cheaper cryptocurrencies is preferable to fractions of more expensive ones. By nature we tend to associate a whole unit as having more value. I can buy 800,000 SHIB or .00049621 BTC which has approximately the same value. Without bias awareness most would naturally gravitate to buying SHIB.

It’s very easy to understand how someone coming into the crypto space could feel like they may have missed out on BTC or ETH but in their mind they can hold hundreds or thousands of a meme coin instead of just a fraction of BTC. By buying cheaper coins or tokens they are unknowingly led into much riskier investments.

There is money to be made in low cap and micro cap cryptos but for the average retail investor you are putting your finances at risk buying crypto just because it is ” cheap “. Extremely volatile price fluctuations in a short period of time and low liquidity are just a few of the considerations.

Don’t make the mistake of confusing price with value.

Thanks for reading !