The Illusion of Certainty in Markets & The science of Bias
In trading, the desire for certainty is one of the most dangerous psychological pitfalls a trader can fall into. While BTC may be displaying bullish behavior, the fact remains that we cannot "know" what will happen next. This fundamental truth often clashes with human nature, as our brains are wired to seek patterns and predictability. However, markets are probabilistic, not deterministic.
As price unfolds, the picture becomes clearer, not because the market is revealing some preordained script, but because each new piece of data refines our understanding of probabilities. The most successful traders accept this reality and remain fluid, adjusting their perspectives as new information becomes available.
The science of Encoding Poor Information
One of the greatest cognitive traps traders fall into is becoming married to their desires or biases. This happens because of the way our brain encodes information:
1. Dopaminergic Reinforcement
- When we form an expectation (e.g., "BTC is bullish, so it must go higher"), and the market moves in our favour, our brain releases dopamine, reinforcing the belief that we were "right."
- This creates a confirmation loop, we start filtering information to support our bias and dismiss evidence that contradicts it.
2. Cognitive Rigidity & Belief Encoding
- The prefrontal cortex, responsible for rational thinking, is often overridden by the limbic system, which governs emotions and survival instincts.
- If we've emotionally attached ourselves to an outcome, our brain literally rewires itself to treat contradicting information as a threat rather than a useful input.
3. Sunk Cost Fallacy & Commitment Bias
- The more time and energy we invest into a particular belief, the harder it becomes to let go, even when new information suggests we should.
- This is why traders hold onto losing trades, refusing to accept new probabilities because it would require admitting they were wrong.
How to Stay Probabilistic & Avoid Mental Traps
1. Detach from Outcomes Focus on executing a well-defined process, not on proving your prediction was "right."
2. Constant Re-Evaluation Every new price movement should be treated as new information that either strengthens or weakens existing probabilities.
3. Active Neutrality Never assign a fixed narrative (e.g., "BTC is going to explode higher"). Instead, frame it probabilistically:
- "BTC has an X% probability of continuing higher, but a Y% probability of reversal if conditions change."
4. Train Yourself to Embrace Opposing Views If you are bullish, seek out bearish arguments and assess their validity.
5. Use Mental Stop-Losses for Biases Just as we place stop-losses on trades, we must be willing to "cut" faulty narratives when price action disproves them.
Final Thought
The market is not a certainty machine—it is a probability engine. The sooner a trader embraces uncertainty, the sooner they free themselves from emotional bias. Traders don’t predict, they adapt.
It’s not about being right. It’s about staying on the right side of probability.
In trading, the desire for certainty is one of the most dangerous psychological pitfalls a trader can fall into. While BTC may be displaying bullish behavior, the fact remains that we cannot "know" what will happen next. This fundamental truth often clashes with human nature, as our brains are wired to seek patterns and predictability. However, markets are probabilistic, not deterministic.
As price unfolds, the picture becomes clearer, not because the market is revealing some preordained script, but because each new piece of data refines our understanding of probabilities. The most successful traders accept this reality and remain fluid, adjusting their perspectives as new information becomes available.
The science of Encoding Poor Information
One of the greatest cognitive traps traders fall into is becoming married to their desires or biases. This happens because of the way our brain encodes information:
1. Dopaminergic Reinforcement
- When we form an expectation (e.g., "BTC is bullish, so it must go higher"), and the market moves in our favour, our brain releases dopamine, reinforcing the belief that we were "right."
- This creates a confirmation loop, we start filtering information to support our bias and dismiss evidence that contradicts it.
2. Cognitive Rigidity & Belief Encoding
- The prefrontal cortex, responsible for rational thinking, is often overridden by the limbic system, which governs emotions and survival instincts.
- If we've emotionally attached ourselves to an outcome, our brain literally rewires itself to treat contradicting information as a threat rather than a useful input.
3. Sunk Cost Fallacy & Commitment Bias
- The more time and energy we invest into a particular belief, the harder it becomes to let go, even when new information suggests we should.
- This is why traders hold onto losing trades, refusing to accept new probabilities because it would require admitting they were wrong.
How to Stay Probabilistic & Avoid Mental Traps
1. Detach from Outcomes Focus on executing a well-defined process, not on proving your prediction was "right."
2. Constant Re-Evaluation Every new price movement should be treated as new information that either strengthens or weakens existing probabilities.
3. Active Neutrality Never assign a fixed narrative (e.g., "BTC is going to explode higher"). Instead, frame it probabilistically:
- "BTC has an X% probability of continuing higher, but a Y% probability of reversal if conditions change."
4. Train Yourself to Embrace Opposing Views If you are bullish, seek out bearish arguments and assess their validity.
5. Use Mental Stop-Losses for Biases Just as we place stop-losses on trades, we must be willing to "cut" faulty narratives when price action disproves them.
Final Thought
The market is not a certainty machine—it is a probability engine. The sooner a trader embraces uncertainty, the sooner they free themselves from emotional bias. Traders don’t predict, they adapt.
It’s not about being right. It’s about staying on the right side of probability.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.