I would be lying to if I told you I have zero trading bias. We all do. However, once you decide that GANN Analysis should drive your trading, you are on the right track.
I know this behavior well, because I used to struggle with trading biases. I would will the markets to move in a certain direction based on the positions I held. This was totally irrational behavior, of course. It would usually end badly, because I was no longer evaluating charts, price and volume objectively. I wanted to win, and I wanted to do it my way.
This behavior nearly destroyed my trading account.
To be a successful trader over the long term, we believe it is critical to understand, and hopefully overcome, common human cognitive or psychological biases that often lead to poor decisions and trading mistakes. Cognitive biases are ‘hard wired’ and we are all liable to take shortcuts, oversimplify complex decisions and be overconfident in our decision-making process. Understanding our cognitive biases can lead to better decision making, which is fundamental, in our view, to lowering risk and improving trading returns over time.
Loss aversion. People often feel the pain of loss more than the joy of gains.
Loss aversion is the tendency for people to strongly prefer avoiding losses than obtaining gains. The loss-aversion tendency breaks one of the cardinal rules of economics; the measurement of opportunity cost. To be a successful trader over time you must be able to properly measure opportunity cost and not be anchored to past trading decisions due to the inbuilt human tendency to avoid losses. Traders who become anchored due to loss aversion will pass on mouth-watering trading opportunities to retain an existing loss-making investment in the hope of recouping their losses.
Crowded Bias or Bandwagon effect : The bandwagon effect, or Crowded Bias, describes gaining comfort in something because many other people do (or believe) the same. Like Biocon 370 CE trade yesterday when company told some important announcement will be given in evening. Lot of people bought it and eventually it turned out to be loss making trade.
In our view, to be a successful traders , you must be able to analyses and think independently. Speculative bubbles are typically the result of group think and herd mentality. We find no comfort in the fact that other people are doing certain things or that people agree with us. At the end of the day, we will be right or wrong because our analysis and judgement is either right or wrong.
When you have a trade on and it starts tanking, show your ego the door. Even if you were 99% sure it was going to be a big winner, it’s OK to admit defeat. Don’t hold onto it – sell it. Get out before your ego destroys your account (something I’ve seen happen far too often).
Finally, practice good risk management and size your positions correctly. This is a surefire way to remove trading bias. Never risk more money than you are comfortable losing. How many times have you lost sleep over a position because you couldn’t afford to lose a certain percentage of the trade? Been there, done that.
As long as commit to GANN Analysis, ignore your ego and right-size your positions, you’ll watch your performance improve.