The Fractal Market Hypothesis (FMH) is a theory that suggests that financial markets behave in the same way as natural phenomena and are subject to the same physical laws as found in nature. It suggests that financial markets are composed of similar patterns which repeat over and over again at …

Behavioural finance is the study of how financial behaviour affects economic decisions and market outcomes, and how those decisions and outcomes are affected by psychological, social, and cultural factors. It is a relatively new field that combines elements of economics, psychology, and sociology. Behavioural finance research has shown that people …

A bias occurs when users use irrational preferences in their work. Usually, it happens unintentionally. Nonetheless, it can impact their work and decision-making significantly. Biases may exist in various areas of life. Some of these may apply when individuals select an item from a given population. In that area, two …

Human psychological bias affects us in many different ways. We have recently discussed how recency bias influences our trading. In this post, we’re going to talk about selection bias. Selection bias occurs when a statistical sample is not representative of the entire population. This situation arises, for example, when a …

Trading is a difficult endeavor, and the main reason most traders fail is that they don’t have an edge. The expectation value of most trading strategies is zero before commissions and slippage. Taking commissions and slippage into account, trading is a negative-sum game. Even with a positive expectancy trading system, …

In any decision-making process, bias can be significantly critical. Simply put, it is an irrational prejudice towards a specific factor. For most individuals, these include tendencies to make decisions without critical thinking or consideration. There are several biases that individuals may face during their decisions. One such bias consists of …

When making decisions, individuals may come across various biases or heuristics. These biases can impact their decisions adversely. Usually, biases stem from pre-existing beliefs or how individuals perceive information. These biases may also have an impact on financial decisions. One such bias that may exist in finance is the framing …

When investors choose a portfolio of stocks or securities to invest in, they have several options. They can choose between both local and international markets to select their investments. It gives them great flexibility when it comes to building a diversified portfolio. Sometimes, however, investors may allow bias to influence …

What is Herding Behavior in Stock Market? Herding behaviour in the stock market is when investors make decisions based on other investors’ investments. Other names for this behavior include herd mentality and herd instinct. Herding behavior explains investors’ tendency to imitate or follow what other investors are doing. Usually, they …

What is the Gambler’s Fallacy? The term gambler’s fallacy refers to the belief that individuals have that the probability of a random event occurring in the future depends on the previous instance of that type of event. Another name used for the gambler’s fallacy is the Monte Carlo fallacy. It …