CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Discover how self-attribution bias can affect your trading decisions. Learn how to identify and overcome this cognitive bias in your trading.
Self-attribution bias, also known as self-serving bias, is a cognitive bias in trading that occurs when a person attributes positive outcomes to their own skills, but blames factors outside their control, such as bad luck, for losses.
Self-attribution bias in trading may lead to overconfidence and excessive risk taking, as traders may overestimate their own abilities when on a winning streak, and vice versa, they may fail to acknowledge their own mistakes when losing.
Self-attribution bias occurs when a trader attributes positive outcomes to their own skills, but blames negative results on bad luck or other external factors.
This type of cognitive bias can lead to overconfidence and excessive risk taking, as traders overestimating their own abilities.
Self-attribution bias may also lead to a failure to learn from mistakes, as people do not accept their faults but blame external factors.
To overcome this bias traders may consider to deploy self-analysis and emotional intelligence strategies that may help them discover strengths and accept weaknesses.
Keeping a trading journal can help traders to identify self-attribution bias.
Self-serving prejudice may appear in various forms while trading, hence let’s take a look at common examples of self-attribution bias:
Credit for wins: Traders may attribute gains to their own trading abilities, even though they were down to external factors.
Blame external factors for losses: Traders may blame losses on external factors, such as market volatility, as opposed to their own decision making.
Overconfidence: Traders may become overconfident in their trading abilities, leading them to take more risk than is appropriate.
Ignore past mistakes: Traders may fail to learn from previous mistakes and repeat them in the future, if they attribute their past losses to external factors and not their own actions.
Excessive self-attribution bias may lead to a variety of problematic behaviours in trading.
Risk-taking: Traders may take more risk than they are comfortable with as they believe their success is down to their own abilities.
Failure to learn: When traders do not accept accountability for errors, they run the risk of not gaining insight from their missteps and repeating them, thus impeding their ability to improve their decision-making practices.
Hindsight: Traders may start to view past decisions as more predictable and logical then they actually were. This can lead them to repeat past mistakes.
Confirmation: Traders may seek out information that confirms their existing beliefs and ignore data that contradicts their views, which can ultimately lead to erroneous decisions.
Inaccurate self-assessment: Traders may misjudge their own abilities and external factors that affect trading results.
Overemphasis on short-term results: Traders can pay too much attention to short-term gains and neglect the long-term risks and consequences of their decisions.
There are several techniques and strategies that help you mitigate self-attribution bias in trading. One of these ways is to start by having a realistic view of yourself as a trader or investor.
Self-analysis and emotional intelligence may help you discover your strengths and accept your weaknesses. By learning more about yourself, you will be able to recognise which strategies you can use to become a better trader. Below are some other tactics that may help you avoid self-attribution bias.
Trading journal: Keeping a record of all your trades, including the rationale behind each decision, may help in identifying self-attribution bias.
Feedback: Sharing information with other traders may reveal a different perspective on your behavioural patterns.
Alternative explanations: When experiencing a loss, you may consider an alternative reason beyond external factors. Evaluating your decision-making process may help in assessing whether your errors may have contributed to the loss.
Variety of information sources: Looking for diverse data, including views and perspectives that contradict your own, may help in identifying self-attribution bias.
Goal setting: Setting realistic goals may help in staying grounded about your successes and mistakes.
Self-attribution bias, which is also known as self-serving bias, refers to a cognitive bias when a trader attributes their success to their own abilities and skills, yet puts the blame for poor outcomes on external factors, such as bad luck.
Some examples of self-attribution bias in trading include taking excessive credit for wins, blaming external factors for losses, behaving overly confidently, ignoring past mistakes. The bias can lead to unreasonable risk-taking, failure to learn, hindsight, confirmation bias, inaccurate self-assessment, overemphasis on short-term results.
There are several techniques and strategies that may help you avoid self-attribution bias in trading. For example, keeping a trading journal, sharing your trading experience with other traders, seeking out alternative explanations, using a variety of different sources and setting goals.
Contact us:call +33 187654090
Members of the Global Institute of Internal Auditors (IIA).
Member of the CypruS Institute of Int Aud Research & Training.
Members of the (CIIFA) and the Association’s Fin – tech Committee.
Instructors on Compliance, Regulation & Internal Audit at the Inst for Pro-Excellence (If0rPE).
This website G Assets LTD is operated authorized and regulated by Vanuatu Financial Services Commision , JLT ASSETS LTD
© 2023 G Assets LTD SV Investments Limited
