Confirmation Bias
Confirmation bias is the tendency to favour information that supports a trade you already hold and dismiss information that contradicts it.
Once you own a stock, every bullish headline feels like proof and every bearish one feels like noise. That is confirmation bias — and it can keep a trader in a losing position long after the evidence has turned.
- Reading time
- 3 min
- Also called
- Confirmatory bias, Myside bias, Selective evidence
- Updated
Confirmation bias in plain words
It is the habit of looking for evidence that backs what we already think and brushing aside anything that doesn't.1
In investing it can make people cling to preconceived notions while discounting contrary information.1
Investors prone to it may read only bullish reports on stocks they own.2
How to catch and counter it
Notice your sources
Check whether you only read bullish reports on what you own.2
Look for bad news
Holders may absorb only good news and ignore bad news; read both.1
Argue the other side
Find a devil's advocate or play that role yourself.2
Avoid echo chambers
Avoid message boards where ideas like yours are hyped.2
Use objective rules
Set objective rules for when to buy, sell and rebalance.1
Seek disconfirming data
Treat disconfirming information as potentially valuable.2
Worked examples
Example 1 — The one-sided reading list
Decision based on half the evidenceA hypothetical trader long $10,000 of a stock reads five bullish notes and skips two bearish ones.
| Bullish notes read | 5 |
| Bearish notes read | 0 |
Reading only bullish reports on stocks you own is confirmation bias at work.2
Example 2 — Ignoring the stop
−$700 versus the planThe hypothetical stock falls 15%; the trader moves the stop lower, citing a positive forum post.
| Planned loss | $800 |
| Actual loss | $1,500 |
Clinging to a view while discounting contrary information turned a planned $800 loss into $1,500.1
Example 3 — Rule-based exit
Small, planned lossAnother hypothetical trader sets a rule: exit if the price closes below the $45 support level.
| Exit price | $44.80 |
| Loss | $400 |
Objective rules for when to buy and sell removed the chance to rationalise, capping the loss.1
Biased vs disciplined process
| Aspect | Biased | Disciplined |
|---|---|---|
| Information sought | Only supporting | Both sides |
| Bad news | Dismissed | Weighed |
| Exit decisions | Rationalised | Rule-based |
| Confidence | Inflated | Calibrated |
Where it shows up in trading
Holding losers
Refusing to exit while a Drawdown grows.
Ignoring stops
Moving a Stop Loss after reading supportive news.
Concentration
Overloading one idea and skipping Diversification.
Journal reviews
Using a Trading Journal to spot one-sided reasoning.
Advantages and disadvantages
Advantages
- Recognising it improves decision quality.
- Simple rules can counter it.
- Easy to audit in a trading journal.
Disadvantages
- Hard to see in yourself.
- Feeds overconfidence.
- Can lead to poor diversification and excess risk.
- Echo chambers make it stronger.
Going deeper
Read as far as you need. Each level builds on the one before it.
Seeing what you want
Beginner
We tend to seek information that supports our beliefs and ignore what contradicts them.1
Cost to a portfolio
Intermediate
Common mistakes
Curating a feed
Following only people who agree with you.
Moving stops
Changing the plan after reading supportive news.
Explaining away losses
Blaming 'manipulation' instead of revisiting the thesis.
No written thesis
Not writing what would prove you wrong.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- You seek what you already believe.
- It keeps traders in losing positions.
- It feeds overconfidence.
- Seek disconfirming evidence on purpose.
- Objective rules beat in-the-moment judgment.
Frequently asked questions
Does everyone have confirmation bias?
Is research the cure?
How can a journal help?
Further learning
- Trading Discipline
Sticking to rules under pressure.
- Trading Journal
Auditing your reasoning.
- Loss Aversion
A related bias.
- Trading Plan
Writing exit rules in advance.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- Schwab Asset Management. Confirmation bias (opens in a new tab) Checked .
- Your Total Wealth (HSF Publishing). Confirmation Bias: Financial Advisors and Investors Should Remove Their Blinders (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.