Adjustment Bias
Adjustment bias is a cognitive error where an individual makes an initial estimate and then fails to adjust it sufficiently when new information is provided. In trading, this often occurs when a trader has an initial thesis about a market trend and refuses to modify it as market data evolves.
In the context of derivatives, this can lead to holding positions that no longer make sense given changes in volatility or market microstructure. The failure to adjust can be costly, as it ignores the dynamic nature of crypto markets.
Traders must cultivate the ability to update their views and strategies in real-time as new data becomes available. This flexibility is essential for survival and success in fast-paced environments.
Glossary
Confirmation Bias Trading
Action ⎊ Confirmation Bias Trading, within cryptocurrency, options, and derivatives, manifests as a systematic preference for information validating pre-existing directional beliefs regarding asset price movements.
Anchoring Bias Finance
Application ⎊ Anchoring bias in finance, particularly within cryptocurrency, options, and derivatives, manifests as an over-reliance on initial price points or reference values when making investment decisions.