Objectivity is the ability to see the market as it is, not as you want it to be. It sounds simple, but it is one of the hardest skills to develop as a trader. Your brain constantly works against you, creating biases that distort your perception and lead to poor decisions. In this guide, you will learn how to recognize and overcome these biases.
Why Objectivity is So Difficult
Humans evolved to make quick decisions based on limited information. This served our ancestors well when facing predators, but it creates problems in trading. Our brains use shortcuts (called heuristics) that often lead us astray.
The objectivity paradox: The moment you have an opinion about where the market should go, you lose the ability to objectively see where it might actually go. Your brain filters information to support your existing belief.
Common Biases That Destroy Objectivity
1. Confirmation Bias
You seek out information that confirms what you already believe and ignore information that contradicts it.
Example
You believe a stock is going up. You read three bullish articles and feel more confident. You see one bearish article but dismiss it as "FUD." You are only seeing half the picture because your brain filters out the negative information.
2. Anchoring Bias
You fixate on a specific price point (like your entry price) and make decisions based on that anchor rather than current market conditions.
3. Recency Bias
You give too much weight to recent events and not enough to longer-term patterns. If the last three trades were winners, you feel like you cannot lose.
4. Sunk Cost Fallacy
You stay in a losing position because you have already invested time, money, or emotional energy into it, not because it is a good trade.
5. Hindsight Bias
After a trade ends, you believe the outcome was obvious and predictable, even though it was not at the time. This prevents you from learning real lessons.
6. Optimism Bias
You overestimate the probability of positive outcomes and underestimate the probability of negative ones.
Signs You Have Lost Objectivity
Watch for these warning signs that bias has taken over:
- You are emotionally attached to a position being right
- You cannot clearly state the case against your trade
- You are ignoring your stop loss or moving it further away
- You get defensive when someone questions your trade
- You keep looking for reasons to stay in a position
- You feel anxious about your analysis being wrong
- You are rationalizing why the trade should still work despite evidence
Strategies for Maintaining Objectivity
Strategy 1: Use Systematic Rules
The best way to stay objective is to remove yourself from the decision. Create clear, rule-based entries and exits that do not require interpretation.
Subjective vs Objective
Subjective: "I will exit when the stock looks like it is reversing"
Objective: "I will exit when price closes below the 20-day moving average"
The second rule removes your opinion from the equation.
Strategy 2: Always Define the Bear Case
Before entering any trade, write down at least three reasons why the trade might fail. This forces you to acknowledge the other side and reduces confirmation bias.
Strategy 3: Use Pre-Defined Price Levels
Before entering a trade, define your stop loss and take profit levels. These levels are set when you are most objective, before you have money at risk.
The pre-decision principle: Make your important decisions before you enter the trade. Once you are in a position, your judgment becomes clouded by the emotions of having money on the line.
Strategy 4: Seek Disconfirming Evidence
Actively look for reasons your trade is wrong. If you are bullish, read bearish analysis. If you still believe in your trade after considering the opposing view, your conviction is better grounded.
Strategy 5: Use a Trading Checklist
A checklist ensures you evaluate trades systematically rather than emotionally. Every trade must pass the same criteria regardless of how you feel about it.
Strategy 6: Remove Price from Your Analysis
Try analyzing charts without looking at the price axis or hiding your P&L. This prevents anchoring to specific numbers and helps you see patterns more clearly.
The Objectivity Test
Before making any trading decision, ask yourself these questions:
- If I had no position, would I enter this trade right now based on current conditions?
- Can I clearly state three reasons this trade might not work?
- Am I hoping the market does something, or observing what it is doing?
- If a friend described this exact situation, what advice would I give them?
- Am I being honest with myself about the risks?
The Fresh Eyes Test
Imagine you just woke up with no memory of your position. You look at the chart fresh. Would you enter this trade right now? If not, why are you still in it?
Breaking Emotional Attachment to Positions
When you enter a trade, your brain starts treating the position as "yours" and defends it irrationally. Here is how to break this attachment:
Reframe Your Identity
- Wrong: "I am long on AAPL"
- Right: "I have a position that happens to be long AAPL"
The position is separate from you. It is not who you are. Being wrong about a trade does not mean you are a failure.
Focus on Process Over Outcome
Judge your trades by whether you followed your process, not by whether they made money. A good process can still have losing trades, and a bad process can sometimes win through luck.
Practice Detachment
Imagine you are a neutral observer watching someone else trade. What would you tell that trader to do? Often the advice you would give others is the advice you need to follow.
Let Data Keep You Objective
Pro Trader Dashboard gives you objective data about your trading performance. See your actual statistics, not what you think they are. Data does not have bias.
Daily Practices for Objectivity
Morning Routine
- Start with an open mind about market direction
- Review price action without forming opinions initially
- List potential scenarios (bullish, bearish, sideways)
- Define what evidence would support each scenario
During Trading
- Use your checklist for every trade decision
- When in doubt, step away and return with fresh eyes
- Ask "What is the market telling me?" not "What do I want it to do?"
- Honor your pre-defined stop losses
End of Day
- Review trades and rate your objectivity on a scale of 1-10
- Identify moments when bias affected your decisions
- Note what triggered the bias and how to prevent it tomorrow
Tools That Support Objectivity
- Trading journal: Writing down your analysis forces clarity
- Checklists: Systematic evaluation removes emotion
- Performance data: Numbers do not lie
- Trading buddy: Someone to challenge your thinking
- Rules-based system: Removes discretion from decisions
Summary
Objectivity is not natural. Your brain is designed to be biased. But with awareness and deliberate practice, you can learn to recognize when bias is affecting your decisions and take steps to correct it. Use systematic rules, seek disconfirming evidence, and regularly test whether you would take the same action if you had no position. Over time, objectivity will become a competitive advantage that separates you from emotional traders.
Continue developing your mental edge with our guides on emotional detachment in trading and avoiding analysis paralysis.