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Overconfidence BiasCauses of overconfidence bias In order to define overconfidence bias, it is important to understand some of the causes. These could include: Doubt avoidance. Very often, people don’t like moments of ambiguity or doubt. Overconfidence could work as a solution, with the overconfident person feeling confident in their abilities to feel sure, even in a situation where they should feel doubtful. Inconsistency avoidance. A lot of the time, people search for consistency when it comes to new ideas. There is a tendency to search for a link between previously held beliefs and new ones. This may lead people to hold onto their old ideas, even if new evidence contradicts them. The endowment effect. This phenomenon is where people overvalue things purely because they own them and could feed back into overconfidence. Hindsight bias. Hindsight bias, the false belief that they saw something happening before it happened when they didn’t could lead to overconfidence. Incentives. Sometimes, the higher an incentive someone has for doing something, the more determined they are to do it. This could make them believe they have made the right judgments and have the skills to get it done, even when they don’t. Types of overconfidence bias Overconfidence can come in various forms, including: Illusion of control: This type of overconfidence bias refers to the belief that someone has more control over a situation than they do. In trading, it could lead to traders believing they can control the market when they can’t. Over ranking: This refers to the belief that someone is more talented than they actually are. This is common because no one wants to believe they are below average. In trading, this could lead to traders making trades based on overly optimistic forecasts, culminating in potential losses. Timing optimism: This is when someone incorrectly thinks they could do work far quicker than they can. This relates to trading when traders believe a trade or investment would pay off far faster than it could. Desirability effect: Perhaps better known as wishful thinking, this is when someone thinks that something will happen just because they want it to happen. Overconfidence bias examples These are some hypothetical cases where trades could go wrong because traders have fallen victim to the overconfidence effect: Believing an asset’s price will continue moving in the same direction – An example of overconfidence bias in trading is when a trader believes an asset will continue to move in a way that benefits them, despite receiving negative news or signals. Suppose a trader made a profit when going long on a contract for difference (CFD) on Amazon (AMZN) shares. They now feel confident the price will likely continue rising, leading them to hold onto the position for too long, meaning there are significant losses when its price trajectory changes. Ignoring risk – Overconfidence could lead traders to ignore potential risks associated with an investment. For example, they may miss the risk associated with a particular sector or industry and trade it heavily. This could lead to significant losses if the sector or industry experiences a market correction. Overtrading Overconfidence bias could make traders believe they may make quick profits through frequent trading. They may take more risks than they should and trade too frequently, leading to high transaction costs and lower returns. Overtrading could also lead to a lack of trading discipline and increased susceptibility to making mistakes. Failing to consider alternative viewpoints Overconfidence bias may be linked to confirmation bias, where people seek information supporting their beliefs while ignoring information contradicting them. This could result in traders ignoring or missing important information and making decisions based on incomplete or inaccurate information, potentially leading to losses. How to counteract overconfidence bias There are ways people can consider if they want to overcome and counteract overconfidence bias. These could include: Acknowledging it. Knowing that overconfidence exists could be the first step in tackling it. Being realistic. Understanding that you do not always make the best decisions all the time could help guard against overconfidence bias. Researching the market. Knowing that markets can do unexpected things very often could help someone understand the consequences of overconfidence. Keeping a note of trades. A trader who records their trades could look over them, see where they went wrong, and gain a perspective that could prevent overconfidence bias. Being diligent. Doing their research and trying to make trades based on facts rather than emotions, coupled with regularly checking and updating their trading strategies, could help stop someone from suffering overconfidence. Conclusion A simple overconfidence bias definition is the tendency to overestimate one’s abilities, knowledge, or judgement that could lead to excessive confidence and risk-taking and result in significant losses. Traders and investors should be aware of the different types of overconfidence and take steps to avoid them, such as seeking out diverse sources of information, avoiding making trades based on emotions, and regularly reassessing their investment strategies. By doing so, traders could minimise the risk of overconfidence bias and make more informed trading decisions.
SP:SPXEducation
by Capitalcom
XAUUSD How to enter on the retest (tutorial)Whats up gold gang! hope you have enjoyed your weekend .. its nearly market open .. so lets get ready. This weeks educational post is talking about the retest .. so what is a retest. When price breaks a banking level .. i normally enter on the break out .. but if i miss that .. you can wait for the retest. This is where price comes back to the level to collect more orders before shooting off in the direction of the current trend. Wait for a wick rejection at the banking level and a bullish candle to follow .. on the hour or 30m is the best .. then you can enter on the break of the previous bullish. Make sure this is at volume time around the opens. As anything .. it sounds simple .. but tricky to get right .. and is a lower probability set up compared to the standard breakout. Hope this was helpful guys .. please leave a like if you did. Ill be back tonight for the open and asian outlook going into tomorrow tommyXAU
OANDA:XAUUSDEducation
by tommyXAU
Professional, But Short, Heads-up Are You Worried Because Of Loss? Hello there, again. Yes, the market has proved itself right turning our trade down. Are you thinking about why the loss after my deep analysis? Don't ask yourself too many questions! All you just need now is to go back to the chart and check out what you did wrong okay? [ b]Loss After Deep Analysis: The market Proved Itself Right The Market Knows More Than You Know After I have done my analysis yesterday and saw those two signals, PIN BAR COMBO, in the H4 timeframe, in the GU market, it shows that the smart money, the banks created those bars to freak you and me, the retail traders. This occasion is inevitable in forex. That's why the emphasis is laid on RISK MANAGEMENT, as there will be a time you will experience a losing streak in the market. As a professional trader, you must prepare for this situation in the forex market. [ b]What Next Should You Do After a Loss? Sit down. Rest. Find something to eat, then go back to the chart to reanalyze it, and be patient. Don't revenge. Don't overtrade. Don't key in the big lot size. Be composed. You shall surely get back on your feet.
by OraclePips
Earthquake tips SOLANA FallSolana pricing research reveals a downward trend. The resistance level for SOL is $24.89 Support is seen at $23.50. Recent Solana price research shows that the coin has been moving sideways over the last few days. The inverse has begun to take shape, resulting in bearish pressure. The current price of Solana is $23.61, with a small downward trend in the graph indicating that sellers currently outnumber buyers. The bearish has been in charge for the last few days, generating a headwind for the cryptocurrency. The resistance level is $24.89, while the support level is $23.50. In terms of volume, Solana has experienced a reduction in buying momentum as well as trading activity during the last several days.
CAPITALCOM:SOLUSDLong
by DEinvestment
AAVE TA Runner upCrypto Altcoins #CryptoWhale100Billion Alt Coin Analysis: AAVE My Analysis shows that AAVE will increase to $65-$67 and return to resistance in the next few weeks. AAVE showing slow sales after the meltdown. Buyers are holding the $51-$54. Possible another down before running to $51 and back up to $65. RSI showing a good bullish move. Small sales showing on the MACD. I'm more bullish for AAVE. W Pattern Forming. Shoot me a message with your Technical Analysis to see your thoughts and trading strategies. #CryptoWhale100Billion Press The Thumbs Up and shoot me a message below what your idea on AAVE will hit. Thank You for the support! Below are some Previous chart links I've written in the past for Reference.
COINBASE:AAVEUSDLong
by CryptoWhale100Billion
BTC Analysis and Key Levels to WatchBYBIT:BTCUSD.P As traders, we must always start our analysis with higher-term timeframe ranges. Recently, we saw the price break to the upside, and currently, it is testing the value area low of the previous range. The horizontal fib 0.618 from the high to the current low acts as a resistance. If we zoom in on the lower-term time frame, we can see that we are forming a range that started on Friday and continued over the weekend. A fixed range tool gives us significant levels ranging between 20700- 21250, which is almost a 4% range. This should be our main trading idea. Yesterday, we saw a push to the downside, which touched the value area low of the range, a swing failure pattern of the previous low, and followed with a nice buyback. The price started to claim the point of control and daily VWAP, and after some consolidation near VWAP, the price started pushing toward the top of the range, where we got another swing failure. After getting accepted back from the SFP level price continues ranging. However, sooner or later, we all know this range will break to either upside or downside. As a trader, we need levels, both to the upside to back up the bullish scenario and to the downside for the bearish scenario. At this point in time, I expect more upside price action. On the upside, we have the NSPOC (Naked Session Point of Control) level at 21725, the weekly level, the fib level 0.618, and the previous range VAH (Volume area high) level around 21827.5. But if the price breaks to the downside, we have a little consolidation around the 18375-18850 area; we do have VAL of the previous range along with the last support area. So we can expect a reaction here. But if the momentum is strong, then we can expect lower. We have daily naked points of control at $17,725 and $17450, along with 0.618 fib level around $17,550. I will expect some reaction here. In conclusion, it's crucial to constantly keep an eye on critical levels such as Current range volume areas and horizontal fib levels, as they can be important in determining the market's direction. Always have a plan and be prepared for bullish and bearish scenarios. Happy trading!
BYBIT:BTCUSD.P
by Pac_Meezy
EURUSD Buy analysis-Congratulations everyone who made money with me. We now plot our next move as price has reached our anticipated weekly resistance. -As we all know trading can get very boring at times. And i feel that the thrill has ended and we are about to jump into quite a boring phase for a while. -If you have been trading for some time, you have probably seen enough of the markets to know that there are two basic moods of the market, and these moods will be seen in any market in the world. There is the calm, drifting, directionless, choppy market as is evident in the yellow box. - At times, the market will also exhibit strong, powerful explosions characteristic of what we have just witnessed. The market is always in one of these two moods. -Continually, the market moves between these two states: the hyperactive trending market and the relaxed, drifting market. Just as there are low tides and high tides, hot days and cool days. Traders take advantage of these two moods in the market. -The weekly resistance that we are on now will be the threshold by which you judge the movement of the market once again. -I see a consolidation coming But at the same time will be looking for buy catalysts on areas of interest.
by EMkioko