What Is Day Trading Bias?

Many people wonder why I name my website DaytradingBias.com and not something else with a catchy phrase involving Emini S&P or Forex. First, I was not web savvy enough back then to recognize that it is better to name a site with a catchy phrase so that it can be found more easily through search engines. Second, it is actually hard to do that for the website I envisioned because I intend to post all kinds of trading information for Emini, Forex and other markets. DaytradingBias.com is never meant to be a single purpose website. Third, there are actually some interesting stories behind the name for which I will share here.

The Psychological Barriers

Early in my trading career trading US 30-years bond futures I often look for short only. My mentor told me it was my cognitive bias seeing tops everywhere. I was told that in order to improve my performance, I have to overcome this mental obstacle.

This is first time the word bias becoming an important word in my vocabulary.

It took me a long time to shake off this top picking only habit. It was difficult not because my top picking has anything wrong. In fact, I made a lot of money trading in just one direction only. It was difficult because my mentor explained to me that once the market dynamics changed, I may not be able to trade on the short side only in the future. He even showed me charts of from the past that some markets can go straight up 10 to 15 days in a row with no pullback whatsoever intraday.

Hence learning to go long with good consistency was the bane of my trading for quite some time. This training, however, saved me during the transition into the modern QE era.

Our cognitive bias always distort how we interpret the information in real-time. These biases are often acquired habits and beliefs without merits. As a trader, we have to safe guard our belief system so that our analysis is not tainted by these biases.

The Objective Tendencies

When we started to have computers fast enough to conduct serious computations, I was able to analyze historical intraday data in ways never possible before. Unlike most people at the time so obsessed with technical indicators and chart patterns, I look into the absolute basic tendencies of the markets I trade. Quickly, my research paid off as I figured out an approach to the market completely different from that dominating the scene at the time.

At the time, I did not work on mass scale simulation to model the financial markets yet. Hence I just knew that in real-time, when certain events happen in a sequence, the outcome would be quite predictable and bankable. Although there was no theoretical framework to support what I found, they are good trading setups.

The objective tendency of the price movements in financial markets is a form of systemic bias. These tendencies work very well not because of coincidence as those economists would make you to believe. As I discovered much later, many objective tendencies are systemic because they happen due to the way a market is structured. Both human traders and bots are very predictable on how they react to price movements, hence biased outcomes are inevitable.

The systemic biases of a market can be identified or discovered if you learn to view the historical data in a non-linear way. This is in contrast to the normal approach of looking at the data assuming that every moment historically is meaningful in some way. As a trader, systemic bias is our key to success.

Day Trading Bias Is Our Daily Struggle

The truth is that no matter how good a trader is, the struggle to fend off our cognitive biases and to focus on our objective reasoning to lean on the systemic biases we know is a daily challenge. It is extremely difficult to handle it well consistently. Everyday, our cognitive biases would influence our decision making in ways we are not aware of. Yet, we think we are in control most of the time. Hence majority of the traders cannot make the right trading decisions in real-time not because they don’t know what the proper reactions are but they cannot see them being applicable to the situation until a moment too late.

The name DaytradingBias is a reminder to myself about the constant struggle between who we are and what we are made of. As humans, we cannot control how we think or how we value things at a primal level. As traders, we can choose to train ourselves to limit the influence of our cognitive biases and utilize our logical minds to make the right decisions more often than not.

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