Why 2 Traders Can Perceive The Same Chart Very Differently - Blackswan Fx
Learn why 2 Traders Can Perceive The Same Chart Very Differently. Explore factors like emotional attachment, recency bias/trading style.

Why 2 Traders Can Perceive The Same Chart Very Differently

“Why 2 Traders Can Perceive The Same Chart Very Differently” – In the world of trading, it is a curious fact that two different traders can look at the same chart and even use the same trading pattern and end up with very different results. Despite having the same knowledge, experience, and access to information, traders can behave differently when looking at the exact same market data. This phenomenon raises the question: why do traders see the same chart differently? In this article, we explore some of the reasons behind this phenomenon and how traders can improve their trading mindset to achieve better results.

Over-committed position

One of the reasons why two traders can see the same chart differently is the level of commitment to the trade. When a trader risks more money on a trade relative to their overall net worth, they become emotionally invested in that trade. This emotional attachment can cause them to make mistakes and react differently to the same market data compared to a trader who has risked a ‘safer’ amount.

The more money a trader has at risk, the more emotionally charged they will be at every up and down tick of the chart. This can lead to short-term reversals being perceived as an impending market correction that may go well past the entry point, causing the trader to panic and exit the trade for a very small gain or near breakeven. On the other hand, a trader who has risked less may view the same correction as a simple market correction and hold onto the trade. This trader may end up making a favorable trading result while the over-committed trader may have exited the trade at a loss.

Bias of no position or position

The bias of having ‘skin in the game’ can influence a trader’s view of the chart. Even if a trader is staying within their per-trade risk parameters and following their trading plan, they are likely to be influenced by the fact that they have their hard-earned money on the line and could potentially lose it. This bias is why trading is not easy and is not for the weak-minded or easily shaken personality.

Demo-trading with paper-money can often yield better results than trading live because it is not real money. To achieve trading success, traders need to forget about the money and trade the markets as if it is all a game, with the money being just a way of keeping score. Traders need to try and see the chart as if they have no position in the market, even if they do.

Recency bias based on trade outcomes

Recency bias can also cause two traders to see the same chart differently. Recency bias occurs when a trader has a bias or an opinion about something due to an experience they had recently with that same or similar thing. For example, trader A may have lost money in a similar scenario before, whereas trader B may have made money on similar market conditions. As humans, we are all influenced by recent events more heavily than past ones, and this can be good and bad in trading.

Market conditions that are trending strongly lend to recency bias being beneficial. However, when the trend changes and the market starts moving sideways, traders are likely to get chopped up if they do not quickly read the price action and figure out that the conditions are changing.

Too attached to the market or to the initial view

Traders can become emotionally attached to charts, certain markets, or just to their initial view on a chart for a variety of reasons. Take a trader who has extensively researched a certain market and studied the chart a lot. They are probably going to become very attached to a view once they take one. This can cause them to look for news articles and web stories that support their view on the chart, essentially letting arrogance and ego dictate their trading behavior.

This is essentially what is called the over-confidence bias, which is caused by spending too much time studying a market and ‘convincing’ oneself

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