Attribution Bias - Distorting you truth.

“Those who do not learn from history are doomed to repeat it” – George Santayana.

Attribution or self-serving bias occurs when one takes the credit for their successful outcomes, but distances themselves from their unsuccessful outcomes. In other words if a person has a positive result they may think it was because they were brilliant, but if they had a negative result they may  see this as the result of events outside of their control.

One sees this bias commonly at work amongst traders and investors, traders may be full of pride and  boasting about their brilliance after a very successful trade, but when they lose money they will look to blame it on other factors, perhaps the unpredictable nature of the markets, a slow internet connection, the broker, the  exchange, the algos or possibly even the source of a recommendation.

The danger of this bias is clear, blaming losses on events outside of one's control, rather than on miscalculations, poor decisions or just the fact that 'some you win, some you lose' can lead to a trader or investor repeating sub-optimal decision making. The past is airbrushed away, and any errors, mistakes or misjudgments are quickly forgotten or excused.

An overlooked aspect of 'attribution bias' is claiming credit for what may merely be 'good luck’. - This is the pitfall of many new traders; they may get an initial trade correct, or possibly an initial few trades correct. This can lead to them brimming with over-confidence, whilst all the time they have probably been on the right side of luck. This thinking does not just befall beginning traders; it can also affect seasoned pros since ‘our minds can often fool us’. – It is when a combination of biases come together that real problems can start, over-confidence bias and attribution bias can create a nasty brew, leading to a trail of losses and sharply eroded capital.  

As I have mentioned previously, these biases often sit just below the level of human consciousness, we are not aware that we have them, and as such they create trading blind-spots which can lead us into all sorts of traps. – I do not know a trader or investor yet that does not fall victim at some time or other to these cognitive errors and distortions. However there are steps people can take to lessen their likelihood of occurrence. If you are reading this now you are on the way to taking one of the steps; increasing your awareness of these biases/blind-spots. - However this will likely only be a fleeting memory soon, as this leaves your short-term and working memory, and most likely does not leave any lasting impression in your long-term memory.  

Regular re-reading or some sort of reminder can help keep this awareness of biases a little more alive, greater awareness is definitely a first step to fighting these blind-spots. – However, I believe keeping a trading journal is one of the best ways to combat these issues over time. I do not feel that everyone has to keep a trading journal, for some it is not absolutely necessary, however, if you are like the 99%+ of traders who often struggle and are tormented by markets and dissatisfied at times with your personal performance, then keeping a journal will prove very useful. I know from personal history and from working with my coaching clients, that many men feel uncomfortable about keeping a diary/journal, it is not generally thought of as a very masculine thing to do. Yet many great traders have kept journals;

• Richard Dennis, arguably one of the greatest ever traders, specified that he would keep a Log of what he did right and wrong. - And I believe he encouraged all the turtles (in the famous experiments to do likewise).
• David Ryan, also in Market Wizards speaks about keeping a trading diary, and contributes it to a major part of his success.
• George Soros keeps a diary of all his thoughts when he's trading and about trading.

However, this is one hurdle many have to overcome. One highly experienced trader with a very successful track record, who I coached earlier last year, was very hesitant to go down the journal route; however once he started keeping a journal he was amazed at how powerful it was. .

I do not suggest keeping it religiously, some people like to update almost every thought and action, I feel intermittent updates when required are however best otherwise it can become a chore and eventually will not be maintained, but no more than weekly otherwise again it will like be forgotten in time. In these updates keep a note of your thinking, including your emotions, e.g. anger, joy, fear, etc.

I would then suggest periodically looking back over your diary, this can really help you deepen your understanding of yourself as a trader, and how you trade. It is here that you may start to find that you have certain patterns at work in your trading and thinking, some of which may hold clues to the biases you are keeping.

I also like to use the journals as memory/reminder boards, I suggest keep a section at the front or back with important information, short articles, inspirations, maybe even list of biases or rules/guidelines. Check these out regularly, since by doing so will eventually keep these more prevalent in your mind.