All posts in "Risk Management"

Invalidation & Confirmation

One of the strongest reasons to begin every trade idea with an invalidation criteria , is to ensure you don't fall prisoner to your biases.

It's human tendency to accept, with open arms, any information that confirms your biases, while rejecting information that contradicts your bias. This is the crux of "Confirmation Bias", and its what often leads to unrecoverable losses.

An "invalidation criteria" is a sharp sword that prevents you from turning a blind eye to changing conditions - whether it be a price trend change, or fundamental change to the asset.

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