By Admiral Markets

Dear Traders,

Did you ever hang on to your trade, even though you were trading against the market and its signals?

All traders experience those agonising moments where they become overly attached to their analysis and the market bluntly moves in the other direction.

Ironically, many traders only see the warning signs when the trade has finished.

Luckily this article aims to teach you how to keep a clear view of your charts, by removing any trading bias you may have.

Trader’s bias explained

The act of trading typically takes place over two stages, where a trader analyses the charts and then pursues
market signals based on that analysis.

Analysis is required to identify the spots on charts, which potentially offer trading advantages over the long term.

The dilemma arises when new chart information, contradicts the current view.

Why?

Because once analysis is completed, it establishes a bias where the trader:

1. becomes attached to their side of the market
2. may ignore opposite market signals.

I frequently made this error as a rookie trader – openly cheering for the bull or bear that I deemed the
obvious winner in my analysis.

This attachment to the trade, blinds your ability to see what is actually occurring on the charts i.e. it creates bias.

With trading bias, you:

1. start to imagine evidence supporting your analysis
2. trade regardless of what market behaviour is truly communicating.

To check if you already have trading bias:

1. practice trading on a demo account and note the moves you make
2. then critically assess those notes afterwards, for any emotionally-motivated move

Remove emotions

The consequence of having a strong trading bias is that you become emotionally involved – fear and anger replace logic.

And you start
hoping that the market’s behaviour will prove your analysis right.

But emotions and being hopeful rather than calculated, are not positive trading attributes.

The market is a place of opportunity, but it does not owe you anything and has no interest in your emotions.

You must therefore focus on being critically aware of the market’s movement – planning and analysis will always trump emotions and/or ego.

Follow the market’s lead

The solution to reducing over attachment to a Forex market signal:

…is to analyse market behaviour, so you can appropriately react…

…rather than trying to second-guess the market and stumbling into loss.

Another perspective is to see trading as a dance, where one dancer leads and the other follows the lead’s signals.

In this scenario, the market leads and the trader follows his/her charts to get important clues about the market’s future intentions.

But traders who think
they are leading the market, will likely miss those key market signals.

Set decision zones and await confirmation

My best method for following market signals, is to:

1. set-up decision zones, and
2. wait for price action confirmation or candlestick patterns at those decision zones.

I look for price to prove and confirm my analysis i.e. let the market decide and then follow that decision.

Want to know how I do it?

Once learned, it’s actually really simple.

Instead of assuming where price might move, I set boundaries that need crossing to confirm my analysis of the market’s behaviour.

For example:

1. after completing my morning analysis, I conclude that EUR/USD is bullish at the start of the trading day (see the following chart’s orange vertical line), and
2. rather than taking an immediate long, I will mark support and resistance levels that I call decision zones.

These zones offer me a place to take a trade, with a bullish:

1. candlestick pattern (green box) at support (Fibonacci and green trend line)
2. breakout (arrow) of resistance (red trend line).

As long as price keeps moving sideways, I will wait and remain patient – remembering that patience is another important part of
trading psychology.

I might be bullish, but I am waiting for the market to confirm that view.

That is why I also mark proven invalidation level(s) where:

1. I am not bullish anymore and have become neutral (grey zone)
2. I become bearish (red zone).

So completing analysis provides direction, but setting up decision zones and waiting for price action confirmation – reduces my bias during trading.

If you have something to add about trading bias or any tips on how to overcome it, please feel free to comment below.

Cheers and safe trading,

Chris

Article by Admiral Markets

Source: How to dance away your trading bias

Admiral Markets is a leading online provider, offering trading with Forex and CFDs on stocks, indices, precious metals and energy.