Overcoming unconscious CFD trading bias

Trading in any markets comes with its own risk factor. When you're trying to make informed and logical decisions about where the market might go next and how well your investments will perform, you need to consider all influencing factors, and that includes yourself. Many investors subconsciously let bias get in the way of their decisions, so they tend to either over- or under compensate for a bias.

Fortunately overcoming unconscious bias when trading in CFDs is relatively simple – it's just a matter of identifying it. It is no newfound concept, as traders have been their own worst enemies for generations, and quite often it isn't the market or other traders that they are competing with, but themselves. It is human to attach meaning to a decision, or try to apply logic to a seemingly random bit of luck, and it is these factors which act to inflate or deflate traders' egos. Much like at the horse races, if you thought you were on a ‘winning streak' you may start to bet higher; this is exactly what CFD traders need to avoid.

There are four key areas of subconscious trading bias that need to be considered to make sure you are investing wisely. Overconfidence bias is perhaps the most common. Having an inflated belief in yourself and your skills is something many traders will fall for. Don't assume that you know how the market will change, as traders with too much confidence tend to find themselves in deep water and are prone to trading too highly. If you truly believe an investment can't fail and have invested a lot in it, then you could perhaps have an overconfidence trading bias, which can be overcome by following some key risk management rules, like only trading what you can afford to lose.

Anchoring bias is an inability to detach the future from the present. Traders with an anchoring bias tend to assume that the future's conditions will largely match todays, and therefore trade on current conditions, which can blind them to opportunities or dangers. The danger of an anchoring balance is that it tricks the trader into thinking that the current market will never change and, with it, perhaps a run of good luck will last forever. If you have lost money as you couldn't accept that a market trend had ended, then you could well have an anchoring trading balance, which you need to attack with a new perspective on CFD trading, by staying up to date and regularly reading the latest charts and market press.

Likewise, confirmation bias is present when a trader only seeks out market information to support their beliefs, rather than looking at the market as a whole. This can be hazardous as it leaves a trader open to missing vital clues and warning signs of which way the market may go next, and a simple way to get over it is to try trading as part of a group, or discussing your market predictions with fellow traders.