Bias and the Role of Subjectivity
Ginni Chauhan
Mapping the intersection of market structure and trading psychology.
Selecting stocks to trade from a screener with predefined conditions and logic has helped a great deal in realizing good trade opportunities. It has also helped in avoiding potential pitfalls. Such as technical traps, news failures, direction failures, etc.
However, selecting stocks to trade is a lot different from trading in stocks. In a trade, precision plays a key role. But when shortlisting stocks, the same streamlining process doesn’t always work the same.For example, shorting a smaller company than a market leader can have a different outcome. Similarly, when going long, a sector-wise correlation among stocks can improve the odds for success. There are numerous examples like these where simple, unquantified decisions help improve profitability. These are some considerations:
One way to be able to guess better is by fine-tuning existing criteria.
Observation and market watch via participation opens the mind to new learning of patterns, skills, strategies, and insights. More patterns and parameters would keep on surfacing along the path of trading. Any system cannot accommodate all without the scrutiny of attentive curiosity and command. No algorithm can imagine the scenario. “Forecast” is an overrated term in the stock market. Learning is the best trading tool.
Incidentally, bias is leading to non-bias and vice versa. That’s when we know that something is right, when randomness comes into play and starts making sense. Most sense is made when we realise our own expectations with trading outcomes and adapt according to the market conditions. We should follow the market with necessary subjectivity to avoid the pitfalls created by its participants.