Bias in trading can hurt you

Today had a good lesson for me on why having a bias is counterproductive as a trader. In Mark Douglas' great book Trading in the Zone he emphasizes the importance of understanding that at any moment in the market anything can happen. Every moment and therefore every trade is different from the last.

This morning I ignored that good information and created a bias in my mind that caused me to trade against an known edge. I saw that the futures were down over a percent in premarket trading and instantly I assumed that we were going to have a down day--possibly a trend day down.

When the market opened up, the gap was less than a percent--about .80%. My trading edge says that a .80% gap is right on the edge of a good gap fade trade. So I should have either been fading the gap, or waiting to see what happened over the next few minutes. I did wait, however, I was so blatantly sure that we were going to have a down day that I sold short after what I assumed was confirmation--a couple of long wicked candles and a bounce off of a Fibonacci level.

The market kicked my buttocks quite thoroughly with a strong move against my position and stopped me out with a loss. The lesson that I learned--my bias kept me from seeing the reality that the market was communicating and caused me to make a trade that had no edge.