Confirmation bias

It took a read of a spread betting supplement in the Evening Standard for this concept to crystallise.

This is where we find ourselves justifying a preconception. A dangerous habit if you have money on the markets at stake.

We actively justify this position by ignoring some information, giving greater weight to other information, and indeed, actively searching out information that backs our preconception.

So we think shares in Ferrexpo are going to go higher. We are able to see that the shares haven't moved for the past two weeks and say for example, a major broker has also downgraded the stock.

But, this is one of my favourite shares. I look for more information to justify the long position I want to take on the stock. I read old articles and take on board information that justifies my position. Ignoring the time that has since elapsed.

While in depth research is key, and indeed, offers great opportunities when we get it right, we are often engaging in confirmation bias.

Spread betting requires a set strategy that must be adhered to in order to succeed. The same discipline should also be engaged when searching out new trades.

Choose your sources, and follow them. Maybe do some paper trades or a few low risk trades.

You will soon find out where good information can be found.