Trading psychology is a science and can be as technical as trading the charts. There is a case, often made by the market wizards (many of the greatest traders of all time as interviewed by Jack Schwager) is that human nature is worse at trading the market than pure randomness. And because of this, we need to reprogram our instincts before we can become consistently net profitable traders. One way that we can tackle that specifically is to be aware of the major types of biases that haunt traders and prevent them from thinking objectively. These types of bias include anchoring, availability, confirmation, framing, herding, hindsight, negativity, overconfidence, positivity, and survivorship bias.

Anchoring bias is when we rely too heavily on the first piece of information we see and give it too much weight in a decision. This is especially the case if it is contradicted by newer information. At that point, confirmation bias will make anything look more convincing which supports the original idea, as it has us looking to validate our own preconceptions. 

Availability bias strikes us when it is too tempting to overweight information that is the easiest to find. Say that one has several powerful models but they take a fair amount of work to update and evaluate. But then someone sees the following popup on their phone from a signal service: “Buy buy buy, experts say!” If that leads to a large trade in itself, then much or most of the important information is being neglected. 

Framing bias happens when we let the way that information is presented affect us too strongly. For example, if shown a chart with one-minute candles that has a vertical orientation, it can make it look like a recent 0.25% move is far more dramatic than it really is, especially when compared to the standard distribution. This can also be as subtle as seeing the last colored candle on a chart, and letting that sway us on what the overall direction is. Another classic case of framing bias is to be too zoomed in and therefore be unaware of the overall direction of the larger trend. 

On social media, herding bias is following tips or being unduly influenced by others without properly considering all available information. It is useful and important to learn from others, but ultimately we should be thinking for ourselves when it really counts and we are making difficult trading decisions. 

Hindsight bias is the belief (after an event has occurred) that one would have easily been able to anticipate what happened. This type of bias is predictably common when people look back on a missed day of trading—whether busy at work or sidelined by broker outages—that they would have made a ton of money if they were just there to trade it. But then, in the heat of the moment, it is never as easy as it looks in hindsight. In particular, what to watch out for here is revenge trading in which we feel that the market owes us something because we missed some “easy money”. One of the original rockstars of trading, Jesse Livermore, warns never to trade from a feeling of such entitlement, and that it usually leads to unprofitable trading due to pushing trades without a proper thesis, setup, and trigger.

Negativity bias or positivity bias is a preference for strictly bearish or bullish information. Confirmation bias is at its worst when being a bull or a bear becomes a permanent part of one’s identity!

One type that is often in our blindspots is overconfidence bias, which is the belief that one's own skills and abilities are greater than they are, leading to excessive risk-taking and poor decision making. This does not necessarily have anything to do with intelligence. After all, we all have unique strengths and weaknesses. If someone is a highly successful stock trader based on levels, but then they decide to go big on a currency pair trade without having any forex experience, then they would be letting themselves be overconfident in one skill due to relative mastery in another. 

And last but not least, survivorship bias is how seeing only the best or luckiest traders be extremely successful can make it seem like more people make it that far than they do in reality. The expert  tail risk trader, Nassim Taleb, focuses on this type of bias with heavy emphasis. He contends that, given enough people attempting to be good traders, that some will become extremely successful from only raw luck. And that, even worse, they will tend to point to their arbitrary methods and claim they are the reason for their success.

Overall, anti-bias techniques start with being aware of what these major types of bias are. It is much harder to deceive oneself when aware of the root causes of deception. But there are also formal methodologies, such as the Bonferroni Correction, which can help to remove accidental bias from quantitative methods such as backtesting.