📅 Day 63 — Cognitive Biases as Trading Ghosts

If you’ve ever walked through an old house at night, you know the feeling: every creak in the floorboards sounds like a ghost. Rationally, you know it’s just wood and gravity. But in the dark, your brain whispers stories.

Markets are haunted too — not by spirits, but by cognitive biases. They drift in and out of the trading floor like phantoms, invisible but powerful. Ignore them, and they’ll spook you into bad trades. Learn their patterns, and you can see right through the sheet.

The Ghosts in the Machine

1. Confirmation Bias 👻
   This is the ghost that whispers, “You’re right, keep looking for evidence you’re right.” You buy a stock and suddenly every bullish headline shines brighter than Vegas neon. The bearish ones? You don’t even see them.
   • Investopedia: Confirmation Bias
2. Recency Bias 👻
   This ghost only remembers the last five minutes. Bitcoin goes up for a week, and suddenly it’s “always” going up. The crash from six months ago? Vanished into ectoplasm.
   • Psychology Today on Recency Effect
3. Loss Aversion 👻
   Perhaps the loudest ghost. We fear losing $100 twice as much as we enjoy gaining $100. That’s why traders hold onto losers (“it’ll bounce back”) and sell winners too early. Like a poltergeist rattling chains, loss aversion keeps you awake at night.
   • Kahneman & Tversky, Prospect Theory

Ghost Stories in Action

Think about the meme-stock frenzy of 2021. Confirmation bias told Redditors they were David beating Goliath. Recency bias convinced them the rocket only went up. Loss aversion froze them in their seats when the party crashed. By the end, the echoes weren’t trades — they were ghost wails.

These weren’t “irrational” investors — they were just human. Ghosts thrive in human houses.

Becoming a Ghost Hunter

The trick isn’t to banish these ghosts. You can’t. They’re built into your wiring. The trick is to notice when the room gets cold.

• Journaling trades can help you spot when you’re only collecting confirming evidence.
• Position sizing can protect you from recency bias turning into overconfidence.
• Pre-set stop-loss or profit-taking levels help cage loss aversion before it drags you into the basement.

Markets are haunted houses. The best traders aren’t fearless — they’re ghost hunters with flashlights. They know that most of the creaks are just the floorboards. But sometimes? Sometimes the shadow in the corner really is something.