Bill Luby at VixandMore coins a new term, Indicator Hunting (link). In plain English, it is looking for indicators to support a narrative. The person has already decided their bias and is only looking for supporting evidence and may ignore contrary evidence. Confirmation Bias is the tendency to mostly read information that confirms the narrative.
Both are dangerous mental traps. Losing objectivity and "falling in love" with a stock, an asset class, or the shorting of a stock or asset class can be an ego driven financial disaster. Some traders would rather be right than make money. Some on the Internet will never admit that they were ever wrong, always finding an indicator or an interpretation to weasel their argument that they were right. The cliche some use is "I wasn't wrong, I was early."
Option traders, especially buyers of options don't have that luxury because time and price are both factors. Option buyers need to get both time and price mostly correct. In trading range markets, time can be a bigger factor in options pricing than the small movements in price.
No comments:
Post a Comment