Be the first to like this
Studies within the field of Behavioural Finance have shown that due to human bias,
market participants do not always act rationally. This creates opportunities in the market for traders to profit from the inefficiencies created by these biases. However, Behavioural Finance also shows that these same biases cause traders to act in ways that could have negative impacts on their personal trading results. The perception of fund managers does change when they have been trained on Behavioural Finance (Nikiforow, 2010). Training sharpens the awareness of loss aversion and limits the affinity for conformity. Nikiforow suggests that what is needed is to incorporate these approaches into the investment process (Nikiforow, 2010). This paper reviews some of the common behavioural biases and how they can impact trading. It then covers the general content and structure of a trading plan and recommends areas where traders can incorporate behavioural bias awareness into their plans using rules and checkpoints.