Outlook Cloudy with a Chance of Bias
Something has come up for me these past couple weeks, that hasn’t really been an issue for a very long time. I’ve been known to espouse, repeatedly, the wisdom of “don’t marry your bias.” And yet, knowing that the USD buying frenzy was due for a pullback I couldn’t let go of the fundamental picture behind the trend. As a result I was unwilling to take the trades that moved against the overall direction of the market. This isn’t inherently bad, but it has brought into focus a rare opportunity for me to examine what it means when I have a bias.
In “normal” conditions (whatever that means these days) I’ve been willing to identify a trend and trade it in both directions. The countertrend side has always made me more conservative, but I’m usually willing to take the signal that I encounter.
I traded through the first stages of the Great Recession and witnessed firsthand what high emotions can do to the marketplace; that severely altered the way I view a changing tide. Now, that I see market emotions reach a similar pitch to that of 08/09, and for similar reasons, I’m simply not all that thrilled about treating the market like I would in “normal conditions” until I see something that looks normal.
Now, that could be just that…”Yes, I hold a bias.”
But what’s really important to discuss in all of this is: when is it ok to break one of your rules? In this case I’m breaking the ‘don’t marry your bias’ rule.
For me, my rules are in place to keep me as calm, cool and collected as I can possibly before, during and after a trade – but especially during because that is where I can do the most damage to my account. Staying objective is the purpose of creating rules in the first place. So, when I come across a rule that negates that intent, I defeat the purpose of the structure I’ve created to keep my trading sane.
If I were to enter a trade on technical signal – regardless of an overwhelming bias – I have to ask myself, is my prejudice so strong that I may mismanage the trade? When the answer is yes I really have no business being in a trade because then I’m emotional before I ever even pull the trigger.
Even though I’m pretty even-keel in a trade, I still have to be aware of the emotions that can arise, especially when I’ve taken a trade that has gone so heavily against my instincts. I can manage that a bit by cutting back on how much I put into the trade, but I can also just stay out and wait for my ideal opportunity. That’s what I’ve chosen to do this week. Even though it is in stark contrast to conventional wisdom, I feel good about my decision because win or lose I can hold myself responsible for my trading decisions. I must face myself in the mirror every day and know that I did what I thought was best in my life and in my trading.
How about you? Is it easy for you to drop your bias in ALL conditions? Once you have a bias do you always trade with it? What allows you to change it?
Triffany Hammond helps traders of all levels, gain the tools, resources and guidance necessary to build on their strengths and work around their weaknesses so that they can make the best possible decisions for themselves in the Forex Market. Triffany is a regular speaker and contributor at 
No Meatballs today??
Great post and topic!!
I admit it’s a challenge sometimes, to be predictive in my analysis but not in my execution. Trade what you see, not what you think right!
This is a dance where the market always leads and if I’m unable to follow, then I’ll happily sit out. I know that there’s always another opportunity, and I never have to swing if I don’t want. Patience definitely pays, the right pitch will come. If in doubt stay out right?
It can be a painful lesson to learn, but it’s *always* better to be out of the market wishing you were in, than in the market wishing you were out.
Time to enjoy the World Cup now for me…
PS. Tornado-chasing, now that would be a thrill!!
SO true! No matter the reason (bias, fear, fatigue, emotional marketplace,etc.) if you don’t see what you need to take a trade you feel confident about…just grab some popcorn and watch the show!
Oops I stopped getting email updates on new posts for some reason, so now I am suddenly catching up …
My lingering question to Triffany, who is also a long time long term trader … how have you found sticking without a bias when trading the longer term charts ? I’ve always found myself having to take a bias on a signal and having to stick with my bias eventhough I am fundementally whipped from side to side, and if i didn’t stick to my bias i would mismanage my trade, either I’m in for the long haul or I’ll be in and out at every wave of the move ? Is it possible to not be biased ?
I actually trade better because of my bias. Well, usually. I think especially because I’m a long term trader first finding that big direction has helped me play strong when I’m with that momentum and more conservative when I’m against it.
It seems to me that the longer timeframe you go in your trading system, the more a bias becomes prevalent …and necessary.
But I’ve never known any trader who hasn’t had some kind of bias – even when they’re willing to trade against it.