Real World  |  MAY 2005

Overcoming Bias by Gary Norden

Stocks & Commodities V. 23:5 (62-63): Overcoming Bias by Gary Norden Trading biases may be affecting your decision-making abilities. Being aware of them can help you overcome them. It has always amazed me how, in a business in which we essentially have a 50% probability of making money, about 80% of private traders lose. In the futures market where technical analysis is more prominent, the failure rate is even higher— more than 90%. Could it be that a majority of traders are doing something drastically wrong? WHAT ARE TRADERS DOING? From my experience as a local trader on LIFFE, running investment bank trading desks, and from conversations with traders and brokers around the world, I have reached the conclusion that the biases and rules of thumb — like anchoring, conservativeness, and loss aversion — described by behavioral finance supporters are good examples of where traders go wrong. More likely than not, traders are prone to one or more of these biases, which can result in irrational and poor decision-making. In order to improve your trading, you must first of all recognize these biases before you can overcome them.

by Gary Norden