Reacting To Market Moves, Part 1 by Melvin E. Dickover
The reason we make counterproductive trading decisions is because of our biases and flawed intuition. In this first part of a two-part series, we analyze and try to understand these trading behaviors so we can avoid costly mistakes and become more effective traders.
Your reaction to market moves is driven by several cognitive biases that affect every part of technical trading. You need to understand these biases. In this article, I first describe the origin of the problem in human intuition, and then use the example of expert prediction and then probability and gambling to illustrate a series of cognitive biases needed to understand the rest of the material. Following that I analyze a series of familiar trading behaviors, introducing more cognitive psychology as needed...