Confirmation bias is a type of cognitive bias in which people tend to receive information that only supports their pre conceived views and beliefs and ignoring contradicting information. By choosing selective information which supports their views, they fail to take an objective decision.
As they started looking for and receiving the information which further supports their initial views, they start thinking that their view or opinion about the subject matter is correct and start to believe it even stronger.
Confirmation bias effects every one in real life and investment life. In real life we try to listen, view and read information and news which are in agreement with out pre conceived beliefs and opinions. This further reinforces our opinions and beliefs whether they are true or not. For example if you start liking a political leader and believes he is a great visionary. If you are influenced by confirmation bias, you selectively read, view and listen only good things about him and ignore all the negative news.
Similarly, in investments once an investor thinks and decides to invest in a stock or already invested in a stock, he/ she tends to accept only the positive news and developments about the company and ignore all the negative news and fails to take an objective decision about the company. Most traders try to SEE the position they hold in the charts although charts clearly shows opposite is true. Social media further reinforces confirmation bias by showing what the visitor wants to see.
If you believe that making 5-10% returns daily in stock market is easy and keep watching such videos, youtube algorithm may show similar videos to suit your interests. To avoid confirmation bias, having an awareness about it is the first step. Once you become aware of its effect on your decisions, you can take corrective steps like looking for opposite views to your beliefs, opinions etc.,
