How confirmation bias affects your decisions & what to learn from it?

As market participants we're often confronted with an array of emotions when observing the daily ebbs and flows of various financial markets. Most of the time these emotions are brought to the fore by the way we interpret different pieces of information in a number of diverse ways.

However if not managed or understood properly our minds are exposed to the vulnerabilities of misreading the information presented to us by selectively picking which type we choose to process instead of using a holistic approach.  

There's a term in psychology that refers to a person's mindset when his/her ability to perceive a situation without bias is hindered by the insistence of their beliefs being accurate in every detail to such an extent they jeopardize possessing full clarity by ignoring information that refutes their view and paying attention only to that which supports it.

If you haven't heard of it before, it's called confirmation bias, a well documented human tendency that has significant relevance within financial markets, especially towards those responsible for taking decisions based on opinions of an investment.

Depending on the strength of conviction the severity of damage to investment capital will be directly related to those who hold a greater belief in their assertions than others who are willing allow the flow of information to process through their minds without presumption holding a considerable weight in their eventual decision.

Here are a few things we can learn from confirmation bias:

• Accepting that success is never guaranteed is crucial in understanding that there are no certainties when it comes to dealing in financial markets, a key to managing the risk on your capital in every facet of investing or trading. 
• Human's natural inclination towards accepting a widely held belief can only be changed by a sudden event that abruptly shakes the variability of thought into motion. This implies we are prone to being complacent but also influenced heavily by the onset of doubt generated after the initial thought is disrupted by the possibilities of alternate outcomes. 
• Having a fixed belief can be advantageous in finding certainty of trend but there needs to be a balance of thought in realising that at any moment that belief might turn out obsolete which stresses the point of having a limit to the amount of losses you're willing to commit too.  
• The longer a firmly held belief remains in place, the more accumulated people feel convinced by it and thus a larger reaction when it all changes. 
• All markets are subject to scrutiny but it's the belief that holds the greatest defence that wins the day. An openness of thought helps in noticing the cracks before they fragment into disbelief.