Confirmation bias
Why do traders notice the evidence that flatters their existing view, and what does that do to their reading of a week?
In plain words
Confirmation bias is the tendency to seek, notice and remember information that supports a belief already held, while discounting information that contradicts it. In markets it means a trader who expects a rise may quote the week's best day and quietly skip the weekly loss.
Why it matters
A risk decision built on half the evidence is usually miscalibrated. If the favourable data point is highlighted and the unfavourable one set aside, the trader sizes positions and sets stops against a picture of the market that never existed, which matters most when the week's range is wide.
In a real week: ETH, week of 13 August 2018
In the week of 13 August 2018, ETH returned -5.83%, with a worst day of -10.74% on 13 August and a best day of +10.69% on 17 August. Its close sat in the upper third of the range at 68.6, and volume was 1.47 times the prior 12-week average, while price was 74.17% below its 52-week high. A bullish trader could have quoted the best day and the upper-third close, skipping the weekly loss and the prior down weeks of -12.35% and -22.23%. ETH lagged BTC by 8.51 percentage points.
A common mistake
Treating the bias as something other people have. Everyone notices the data point that agrees with them first; the check is to list the contrary evidence deliberately before deciding.