Outcome bias
A trade closed in profit was not necessarily the right one. Judge the decision, not the result.
Outcome bias — what it is?
Outcome bias is judging whether a decision was right by how it ended. The trade made money, so the entry must have been correct.
In the market that logic does not hold. A single outcome carries almost no information: a correct decision can end in a loss, and breaking every rule can end in a profit.
That is exactly how bad habits get locked in. One profitable trade without a stop teaches you faster than ten careful ones — and teaches you the wrong thing.
- Right and up — the system works — do it again
- Right and down — a normal loss, nothing needs changing
- Wrong and up — the most dangerous case: you got lucky, and your brain filed it as skill
- Wrong and down — an honest lesson, at least you can draw conclusions from it
- Conclusion — Judge the decision at the moment of entry, not how it all ended
Outcome bias — how it is built?
Separate judging the decision from judging the result. In your journal mark them apart: was the plan followed, and what was the outcome. A good decision with a loss is normal; a bad decision with a profit is a reason to be wary.
Outcome bias — common mistakes
Treating a profitable trade as confirmation of the method.
Changing the rules after one failure.
Judging yourself by the day's balance.
Praising yourself for breaking the plan when it happened to work.