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Running head: RESEARCH PAPER 1

Cognitive Biases in Technical Analysis

How the Adequacy of Analysis is swayed by Cognitive Biases

Amir Tabch


Society of Technical Analysts



The purpose of this paper was to ascertain how cognitive bias can impact upon the work

of technical analysts. This was completed through an exhaustive, strategic search of relevant

literature pertaining to predetermined forms of bias, and analyzed by the author as to how each

independent form of bias exerts its influence in this field. As a result of this analysis, it is found

that organizations would best benefit from hiring an independent contractor to observe and

consult on the forms of bias experienced in the field, in order to mitigate any future negative

financial decisions that may have been influenced by bias. It can be safely argued that the

corporate world is prone to bias via technical analysis.



To Mayssoun,

The half of me who has made me whole and the only Indicator I will ever need

Table of Contents

Introduction………………………………………………………………………………………. 6

Materials and Methods………………………………………………………………………….. 10

Results…………………………………………………………………………………………. 114

Discussion……………………………………………………………………………………... 114

Conclusion…………………………………………………………………………………….. 116

References……………………………………………………………………………………... 117

List of Figures

Figure 1: Gutnick et al. (2006) Pyramid of Neuroeconomics…………………………………….8

Figure 2: Armstrong (2015) Trends in


Figure 3: Goldman Sachs Research, Kahneman “Thinking, fast and slow”................................13

Figure 4: Figure to Show Ambiguity Effect……………………………………………………...14

Figure 5: Figure to Show Anthropomorphism…………………………..……………………….18

Figure 6: AmiBroker - advanced charting and technical analysis software…………………….22

Figure 7: Bush tax cuts increased revenue……………………………………………………....23

Figure 8: Goldman Sachs Research estimates, Datastream…………………………….………28

Figure 9: Goldman Sachs Research estimates, Datastream…………………………………….39

Figure 10: Figure to Show (1) Hyperbolic: asset holdings versus (2) Hyperbolic: consumption43

Figure 11: All Companies Risk…………………………………………………………………..65

Figure 12: The Weight of Company Commentary……………………………………………...102
Figure 13: Bloomberg, Bloomberg 10 + Year Treasury Index………………………………....107
Figure 14: Number of Memories and Age at Encoding………………………………………...109
Figure 15: Optimism versus Pessimism via the Rosy Retrospective…………………………...111

Figure 16: Suggestibility………………………………………………………………………..116



Aims & Objective

The primary objective of this study is to highlight the significance of technical analysis in

the investing and trading arenas, and to find out how the adequacy of technical analysis is

tempered by cognitive biases. The process will involve the categorization of cognitive biases,

their general definition, an illustration of each, and the relevance of the discussed cognitive

biases in the field of analysis, particularly the realm of technicians or chartists. Finally, the paper

aims to determine means to overcome each bias. Each form of bias will be supported by suitable

examples and the relevant data researched from authentic resources, identified through a

strategic search of recently published literature.

Thesis Statement

In the 2006 motion picture The Sentinel, Detective David Breckinridge (Kiefer

Sutherland) proclaims, “you know my problem with gut feelings? Once you have them, the only

evidence you see is the evidence that reinforces your gut feeling; it is human nature.” What did

he mean? How does human nature mediate our decisions? How does human nature affect our

decisions as technical analysts & technical traders?

Generations of investors have gone through extremes of emotion where rational thinking

is cast aside and sentiments, not fundamentals, drive the markets (Benhabib, Liu, & Wang,

2016). According to the work of Nofsinger (2016), only two factors can move the market: fear

and greed. These two trends have ruled the flow of the market, certainly over the last three

decades, but also potentially long before. However, additional factors related to human

psychology have also played a significant role (Livermore, 1940). As stated Livermore (1940):

“Human nature never changes. Therefore, the stock market never changes. Only the faces, the

pockets, the suckers, and the manipulators, the wars, the disasters and the technologies change.

The market itself never changes. How can it? Human nature never changes, and human nature

runs the market – not reason, not economics, and certainly not logic. It is our human emotions

that drive the market, as they do most other things on this planet,” (p. 45).)

Gutnik et al. (2006) asserted that simple choice behaviors do not account for the

complexity of human decision-making under uncertainty. Gutnik et al. (2006) argued that at the

time of making a decision, an individual’s emotional and cognitive state and temporal focus lead

the individual to evaluate the perceived risks and benefits of the decision, which ultimately leads

to a final decision. This process then works as a feedback mechanism, affecting each subsequent

decision (Gutnik et al., 2006). As a result of this well-documented trend within the financial

sector, this paper aims to understand how human bias, an entrenched element of human nature,

constitutes a cataleptic challenge to financial survival, from a technical perspective.


Figure 1: Gutnick et al. (2006) Pyramid of Neuroeconomics - the above figure shows how

neuroscience, psychology, and economics intertwine to form neuroeconomics, cognitive

neuroeconomics, and eventually, how these apply to infomatics.


In order to conduct this study, a strategic search of recently published scholarly literature

was conducted. This search was optimized using Google Scholar, with key phrases such as:

cognitive bias, cognitive bias finance, bias and financial trends, technical analysis, decision-

making investors, bias in decision-making investors, social biases investment, ambiguity affect

finance, anchoring and focalism, anthropomorphism, attentional bias finance, automation bias

investments, backfire effect, bandwagon bias finance, base rate neglect, base rate fallacy, belief

bias, bias blind spot, choice supportive bias, clustering illusion finance and stocks, confirmation

bias, congruence bias, conjunction fallacy, belief revision conservatism technical analyst,

continued influence affect, declinism, and more. The purpose of this strategic search was to

identify trends within the literature pertaining to cognitive bias in technical analysis.


The paper has opened with the presentation of aims and objectives of the study. It is then

followed by an attempt to provide an insight into the topic. The essence of cognitive biases is

described in detail in the context of analysis. The three categories of biases are described

explicitly. Finally all the possible forms of biases that are possibly affecting technical analysts

are listed and detailed. Each description of a form of bias is followed by a proposed solution of

the issue either through further research or cited material. Finally the inferences made are

combined in the result section.


According to the Society of Technical Analysts (STA) technical analysis is a method of

forecasting the direction of financial market prices though the evaluation of historic price and,

where available, volume data (Society of Technical Analysts, 2016). Hoffmann and Shefrin

(2014) argued that technical analysis of trade diversification, investment choices, and portfolio

decisions has been largely neglected by the academic analysis field. One of the arguments for

this neglect is that technical analysis, though a practical and predominantly quantitative field

depends on theoretical development prior to implementation of strategies for analysis (Hyman,

2014). It is these theoretical foundations, frequently based in human behavior that can be

impacted both positively and negatively by cognitive biases (Chaffai & Medihoub, 2014).


Cognitive Bias

Behavioral finance studies the effect of social, cognitive, and emotional factors on

people’s economic decisions (Barberis, 2016). It helps us better understand investors’ behavior

and shines a light on why and how markets behave the way they do (Society of Technical

Analysts, 2016). By understanding human behavior and the psychology of the market, technical

analysts can improve upon their own actions, resulting in long-term improvements to the quality

of outputs (Hrishleifer, 2015). One particular area of behavioral finance that is growing in

interest is that of cognitive bias (Rizzi, 2015). Cognitive bias depends on individual qualities

(Rizzi, 2015).

The set of qualities that contribute to the success of a technical analyst are traits:

objectivity, equality, standards, factual choices, and strength to repel any effort of deviance from

impartiality (Ebrahimi, Dastgir, & Latifi, 2016). The variance observed in technical analysts

within the financial industrial complex is due to the influence of cognitive biases (Schmidt &

Hunter, 2014). The reasons for mental deviations are usually arbitrary, unconscious, but should

not be taken lightly when making investment decisions (Schmidt & Hunter, 2014). The set of

cognitive biases lead analysts to make inaccurate judgments, causing an overestimation or under

estimation of a financial situation (Abdallah & Hilu, 2015). It has been observed that

professional technical analysts rely upon assumptions to present their stance and to prove it to be

correct (Smith et al., 2016). This means that laziness and lack of responsibility can also lead to

biased decision making (Smith et al., 2016). However the largest source of bias is believed to be

external peer influence (Suter & Cormier, 2016).


Tversky and Kahnman (1996) argued that financial and entrepreneurial decision making

is tempered by the cognitive biases that are likely to be a part of the personality of any

individual. These biases can be intentional as well as unintentional (Baker & Ricciardi, 2014).

The external factors usually give rise to uninformed and unintentional biases while personal

choices and likes give rise to intentional biases as well (Baker & Ricciardi, 2014). No matter

what the nature of bias is, it is destined to have a negative impact upon the neutrality of the

process of analysis (Ramiah, Xu, & Moosa, 2015). Armstrong (2015) summarized this trend as,

“once an analyst interprets what he or she thinks will happen, the game is reduced to an opinion

based purely on the experience of the person offering the statement.” (p. 3)

Figure 2: Armstrong (2015) Trends in Bias - the above figure shows the various forms of

cognitive bias, with the most popular observed being herding (34%)

Martin Armstrong stated: “Once an analyst interprets what he or she thinks will happen, the

game is reduced to an opinion based purely on the experience of the person offering the


Shown below are some of the cognitive biases and the illustration of effect they have on the
Process of decision making (Barnes, 1984).

Figure 3: Goldman Sachs Research, Kahneman “Thinking, fast and slow” - the above figure

depict investment decisions and estimates, with descriptions of each and how these translate into


Decision Making, Belief, and Behavioral Bias

The types of biases that construct a specific approach for a person are known as

behavioral biases (De Bondt et al., 2015). This sort of bias damages the process of analyzing a

business issue or an investment decision because the decisions of the analyst will be driven by a

confined and limited set of data (Schmitt & Westerhoff, 2014). The analyst will either form

certain beliefs to overshadow his or her analysis, or will establish a belief on the basis of an

external source of bias (Qadri & Shabbier, 2014). Behavioral biases are inherently limiting

under these means, as the individual analyst may be unable to accept a clear fact, and will

instead form their own opinion of a trend or finding without substantial evidence that confirm

the assumption will be realized (Neely et al., 2014).. In short, these types of biases influence the

analyst’s decisions, beliefs, and overall behavior (Nasseri, Tucker, & de Cesare, 2015).

Behavioral biases is believed to be the most significant category of biases (Nasseri et al., 2015),

but can be set into various sub-fields, which will continue this discussion, starting with social


Ambiguity effect. A major form of behavioral and cognitive bias is leadership.

Leadership can influence ambiguity, or an absence of data, which is known as the ambiguity

effect (Dimmock et al., 2016). It is suggested by the effect that individuals have a tendency to

choose alternatives for which the likelihood of an ideal result is known, over a possibility for

which the likelihood of an ideal result is not known (Trautmann & Van De Kuilen, 2015). A

technician or a technical analyst’s role is to dissect investments in view of technical indicators

and past prices of market, and therefore ambiguity is frequently perceived to be negative (Cohn

et al., 2015). It is believed by technical analysts that transient value movements are the outcomes

of demand and supply forces (Palan, 2015).


For technical analysts, the nature of security is less applicable than the present parity of

sellers and buyers (Palan, 2015). Taking into account careful translation of past patterns of

trading, technical analysts attempt to perceive this parity with the point of anticipating future

movements of prices (Beccalli, Miller, & O’leary, 2015). An ambiguity might be encountered by

a technician while making decision regarding an investment if he has little knowledge regarding

either technical indicators or the past market prices (Petkova et al., 2014). If a technical analyst

has more knowledge regarding technical indicators and less knowledge regarding the market

prices, then he will make an investment based on technical indicators giving less consideration to

the market prices, for example. The following figure depicts the process of attempting to

eliminate ambiguity:

Figure 4: Figure to Show Ambiguity Effect - this figure exacts how to resolve ambiguity,

starting with the requestor describing goals, vision, and solutions, followed by implementation,

iterate to deepen understanding, leading to resolution.


Anchoring or focalism. Focalism or anchoring is a bias that portrays the regular human

inclination to depend too vigorously on the main bit of data offered when deciding upon

investments (Shankar & Babu, 2014). Focalism takes place when an individual gives a

particular piece of data a chance to control his or her intellectual process of decision making

(Shankar & Babu, 2014). Individuals frequently construct their choices in light of the principal

source of data to which they have uncovered (for example, an underlying price of a stock) and

experience issues altering or adjusting their perspectives to new data (Shankar & Babu, 2014).

One main piece of information is considered while anchoring (Shokouhi, White, & Yilmaz,

2015). Numerous technical analysts will focus on particular stock costs particularly at levels

where they have bought the stock already or at what they regard to be the genuine estimation of

the stock (Shokouhi et al., 2015). This can lead analysts to assume that the stock is undervalued,

yet there may have been an adjustment in the basic essentials which they have not seen

(Shokouhi et al., 2015). Anchoring can be avoided by ensuring a technical analyst conducts a

sound assessment of the information, distinguishing whether the client is settling on a

passionate choice or information driven choice (Duclos, 2015). When an analyst does not

concentrate on all of the indicators that support or validate an analysis, the analysis, by default,

contradicts it (Duclos, 2015).

Anthropomorphism. Anthropomorphism is the provenance of feelings, qualities, and

aims of human for non-human substances. It is thought to be an inherent inclination of

psychology of human beings (Avanaki et al., 2015). It is a phenomenon that incorporates

thoughts from formative psychology, neurosciences, and subjective brain research (de Melo,

Gratch, & Carnevale, 2015). Specific dissimilarities in anthropomorphism are essential for

building up an empathic connection with nonhuman elements for judgments of obligation and

culpability and for the advancement of social impact (de Melo et al., 2015). It has been

anticipated that the complex and unpredictable workings of monetary markets are influenced by

this bias (Stiglitz, 2017). For instance, the eagerness of a specialized technician to put resources

into a specific idea is evoked because of his or her human feelings (Stiglitz, 2017). The

expectations for nonstop value patterns in a securities investment can be depicted in type of this

bias (Stiglitz, 2017). Seeing a technician to have a human-like personality has no less than three

noteworthy results for both the technician perceived and the perceiver (Epley & Waytz, 2009).

To begin with, seeing a technician to have a level of intellect, which implies that he is

equipped for acquainted experience and ought to in this way, is dealt with as an ethical agent

who deserves concern and care (Gray, Gray, & Wegner, 2007). Second, seeing an operator have

the intelligence to conduct their business implies that the technician is equipped for deliberate

activity and can in this manner be considered in charge of its activities (Gray et al., 2007).

Lastly, perceiving an operator to be intelligent implies that he or she is fit for assessing, judging,

and observing a perceiver, serving as a source of standardizing social impact (Thompson et al.,

2016). .

Nicaise (2014) argued that many individuals view the stock market as a rational and

responsible human being. Though the market is inanimate, technical analysts, fund managers,

and others involved in the financial industry frequently refer to the market using human

emotions, such as temperamental or skittish (Taffler, 2014).Despite this, there is only abstract

personification in the market, and only as the movement experienced is the result of thousands

of traders moving money around through waves of optimism and pessimism throughout the

course of a day (Taffler, 2014). Technical analysts can speculate on the cause for a rise or fall,

and most of the time, they're probably correct. However, unless every individual trading on a

market what they did that day and why, an assertion about the cause for market activity is

merely an unsubstantiated hypothesis (Taffler, 2014).

The figure below shows how lowered conflict experience of the person with the product

increases his demand for the product.

Figure 5: Figure to Show Anthropomorphism - this figure shows how conflict experience

can be mitigated through anthropomorphism and goal strength

Automation bias. Automation bias is the propensity for humans to favor suggestions

from automated decision making systems and to ignore contradictory information made without

automation (Hoff & Bashir, 2015). This happened when humans rely on automated systems that

do not inform them of a problem, while an error of inclusion arises when humans make choices

based on incorrect suggestions relayed by automated systems (Wickens et al., 2015).


Some factors leading to an over-reliance on automation include inexperience in a task,

lack of confidence in one’s own abilities, a reflexive trust of the automated system, a lack of

readily available alternative information, or as a way of saving time and effort on complex tasks

or high workloads (Wickens et al., 2015).

Outsourcing discretion is a key purpose of study inside behavioral financial aspects. In its

dynamic frame, the idea pervades numerous parts of society, with the most unmistakable

illustrations regularly identifying with eating regimen (Wickens et al., 2015). Buyers recognize

that the ideal conduct would be to diminish utilization, whilst expanding their physical action. In

the speculation administration industry, singular financial technical analysts frequently settle on

nonsensical choices inferable from human behavioral bias (Strauch, 2017). These choices, in

total, regularly prompt poor returns over the long haul (Strauch, 2017). Managers of automated

investment can build and keep up a methodical procedure, to offer venture returns more

assurance from bad conduct' than any time in recent memory (Strauch, 2017). Furthermore, a

calculation can robotize speculation portfolios, helping to decrease expenses, expand efficiencies

and streamline procedure through a straightforward automated interface (Strauch, 2017).

This minimizes the requirement for human chiefs to be normal and utility-boosting

people, as they supplant the inalienably defective basic leadership component to misuse each

chance to expand their advantage or joy with information driven basic leadership (Strauch,

2017). This is basic as the quirks of human judgment can frequently fall behind reality and

information educated basic leadership gives the instruments to adjust the blunders and bias

heading out our manners and traditions, for example, tendency of an individual, convention and

even superstition (O’Rourke & Lollo, 2015). Automation bias can be mitigated by the design of

automated systems, such as reducing the prominence of the display, decreasing detail or

complexity of information displayed, or couching automated assistance as supportive

information rather than as directives or commands (O’Rourke & Lollo, 2015). A technician must

train on an the automated system he or she creates, which includes introducing deliberate errors

so as the system becomes significantly more effective at reducing automation bias than just

informing the technician that errors can occur, without relying on optimization and without

increasing the complexity of tasks thus reducing the benefits of the automated assistance

(O’Rourke & Lollo, 2015). A technician can design an automated decision support system to

remove emotion and balance positive and negative effects rather than attempt to eliminate

negative effects (O’Rourke & Lollo, 2015).

Backfire effect. The backfire effect is when factual information does not change the

mentality of an individual toward a situation (Mendoza, Wielhouwer, & Kirchler, 2017). This

bias has been exhibited tentatively in mental tests, where subjects are given information that

either strengthens or conflicts with their current inclinations individuals appeared to expand

their trust in their earlier position paying little respect to the confirmation they were confronted

with (Tan, Ying Wang, and Zhou, 2014). Each optional technical analyst confronts a test when

he or she ventures with any certainty (Tan et al., 2014). The best technical analysts are ones that

can alter their opinions when given new actuality (Beckers, van Doorn, & Verhoef, 2017).

When profound feelings are tested by conflicting proof, certainties can become more grounded

(Beckers et al., 2017).

The best technical analysts are ones that can alter their opinions when given new

actuality. Shockingly, brain sciences have discovered something many refer to as the reverse

backfire impact. The reason most work under is that when certainties are tested with realities,

your sentiments will be adjusted. In all actuality, when profound feelings are tested by

conflicting proof, our certainties really get more grounded. So what would you be able to do to

maintain a strategic distance from this issue? Clearly, a stop misfortune will offer assistance.

There is a point where you will cut your loses paying little heed to your perspectives. You force

ceasing conduct upon yourself. Obviously, you need to execute when the stop is come to and

not alter your opinion. The more extensive issue is figuring out how to take after a taught

approach open to new truths. One of the considerable favorable circumstances with precise

exchanging is that as new data is gotten and redesigned, it won't be released or marked down. It

will be utilized as a part of the definite way it was customized.

Figure 6: AmiBroker - advanced charting and technical analysis software between

October 2013 and April 2014, and the increases in overall trends

The chart shown below is a real life demonstration of backfire effect. The corrections have

doubled after Bush increased the revenue through tax cuts.

Figure 7: Bush tax cuts increased revenue - this figure show how after correction,

conservatives increased revenue by over 60%, whereas liberals dropped by roughly 3%

Bandwagon bias. Bandwagon bias is the belief that an initial general assessment is

correct (Mokhtar, 2014). This prompts crowd conduct in the business sectors (Mokhtar, 2014).

Driven to a limited extent by the accessibility bias, bandwagon bias is an important patron to

individuals losing a considerable measure of cash in the securities investments (Mokhtar, 2014).

Bandwagon bias can be avoided by learning not to follow the crowd, and to , settle on

choices that take into account independent findings (Bitvai & Cohn, 2015). The best technical

analysts are regularly desolate on the grounds that they listen to their own investigation and

fallacy the voices of the masses (Bitvai & Cohn, 2015).

Base rate neglect. Base rate neglect, or base rate fallacy, is a cognitive bias in which

very little emphasis is put on the base (unique) rate of plausibility (Montibeller & Winterfeldt,

2015). Base rate neglect is the inclination for technical analysts to mistakenly judge the

probability of a circumstance by not considering every pertinent data and concentrating all the

more intensely on new data without recognizing how the new data affects the first presumptions

(Montibeller & Winterfeldt, 2015). At the point when a technical analyst shows base rate fallacy,

he or she fails to consider the likelihood that new data does fit the classification into which it has

been put, and in this manner he or she puts too little weight on the base rate (Montibeller &

Winterfeldt, 2015).

This can be clarified regarding Bayesian measurements where an individual structures

probabilities or base rates (Boos et al., 2016). With the receipt of new data, discerning technical

analysts overhaul those probabilities to mirror the new data (Boos et al., 2016). The inverse

impact is a typical subjective blunder, known as the conservatism inclination, whereby the base

rate is excessively weighted (Boos et al., 2016). These sorts of issues might be troublesome in

light of the fact that individuals normally expect that base rates are pertinent to the end result

(Hawkins et al., 2015). Expressing the issue in a way that proposes a causal relationship bodes

well to individuals (Harang, 2014). Some have found that the base rate neglect was less

convincing when communicated regarding frequencies instead of rates (Harang, 2014). Posting

the depiction before the base rate data diminishes this inclination (Hawkins et al., 2015). Shifting

the base rate crosswise over rehashed trials and additionally reassuring individuals to think like

analysts (Harang, 2014).

Belief bias. Belief bias is the tendency of an individual to judge the quality of contentions

in view of the believability of their decision as opposed to how emphatically that conclusion is

supported (Alti & Tetloc, 2014). If individuals concur with a perspective, they are admitting

trust in a procedure used to acquire the outcomes they believe to be correct (Alti & Tetloc,

2014). Working with feelings viably is impossible for fruitful exchanging (Alti & Tetloc, 2014).

At the point when emotional intelligence is built by an individual for top execution exchanging,

emotional regulation is an inescapable by-item, and this is what leads to belief bias (Han &

Hirshleifer, 2016). Seeing how feelings work is critical (Han & Hirshleifer, 2016). Since

exchanging is a venture based upon probability where huge numbers must be set up to see a

genuine pattern, beliefs of an individual are generally not suited for exchanging (Han &

Hirshleifer, 2016).Due to the beliefs technical analysts are bedeviled in an attempt to become

effective technical analysts (Lim, 2015). As the technical analysts direct them, they start to bore

down further into their beliefs about their ability to oversee instability (Lim, 2015). This must

be changed for the technical analysts to move from attempting to ability in his/her execution of

exchanging (Lim, 2015). Beliefs are the lens through which the technical analysts see the

business sectors (Lim, 2015).

Choice-supportive bias. Choice-supportive bias is the tendency of the individual to view

his decision in the most advantageous light (Vreeswijk et al., 2014). Choice-supportive bias

argues that individuals are hardwired to reinforce their decisions subconsciously (Vreeswijk et

al., 2014). The positive characteristics of the decision are ascribed retroactively due to which the

certainties of an individual are strengthened after decision point (Vreeswijk et al., 2014). This is

the reason an individual become more resolute in his position after making initial choice

(Vreeswijk et al., 2014). The aspects of the behavior of the technical analysts that make them

susceptible to unbelievably real investment opportunities can be risky, while making decisions

or assessment of the performance regarding staying diversified or invested (Mather, 2015). As

the good investment choices are more frequently remembered by the technical analysts than the

bad or neutral investment choices, this can lead to wrong reminiscence of the final outcome

(Mather, 2015). It is necessary for the technical analysts to learn from their bad investment

experiences rather than forgetting them (Mather, 2015). Choice-supportive bias can be avoided

by trusting on independent reviews (Mather, 2015). Instead of showing loyalty to a specific

market or technical analysts and focusing on the positive characteristics of that particular

market, technical analysts must trust on the independent reviews (Mather, 2015) It is important

that technical analysts must not make decisions based on the unsolicited sources. The buying

and investing habits must be reviewed regularly by the technical analysts and it must be made

sure that the investments made regularly are still on the top (Mather, 2015).

Clustering illusion. Clustering illusion refers to the tendency of an individual to see

clusters or patterns when they do not exist (Tsinaslanidis & Zapranis, 2016). Problems can be

created by those patterns for the technical analysts due to the fact that a pattern of strong return

might be interpreted as a trend when it is merely a piece of normal returns variations

(Tsinaslanidis & Zapranis, 2016). It might result in creating a trap for technical analysts where

short term data of performance might encourage an individual to stress a specific investments

class like real state, bonds or stocks (Tsinaslanidis & Zapranis, 2016). The investing styles of

the technical analysts are influenced by the clustering illusion via examples such as large cap

versus small cap, or value investing versus growth investing (Tsinaslanidis & Zapranis, 2016).

Clustering illusion can be avoided by the technical analysts if they do not emphasize the

short term performances regardless of its negative or positive nature (Tsinaslanidis & Zapranis,

2016). It should be kept it in mind that the cold and hot streaks are because of luck, rather than

measurable knowledge (Tsinaslanidis & Zapranis, 2016). While selecting stocks, a trader must

not depend upon intuition (Tsinaslanidis & Zapranis, 2016). The cognitive biases such as cluster

illusion can be overcome by disciplined strategies and rules based on facts (Tsinaslanidis &

Zapranis, 2016). It can also be avoided by attempting to not time the market (Tsinaslanidis &

Zapranis, 2016). Good performance for years the trader might attempt to buy more stocks, and

bad performance for several years might cause to sell stocks (Tsinaslanidis & Zapranis, 2016).

However, it should be done oppositely (Tsinaslanidis & Zapranis, 2016). The stocks prices must

not looked more frequently. The more the prices are observed the more is the possibility for the

existence of the cluster illusion (Tsinaslanidis & Zapranis, 2016).

The figure below shows how the forecasts presented by analyst are affected by clustering

effect. The analysts have been consistently failing to make the right estimates. They have been

supposing the patterns that don’t exist in order to predict the growth revenue to be between five

to six percent while actually it always falls down or rise well above it.

Figure 8: Goldman Sachs Research estimates, Datastream - the above figure shows how

the clustering illusion works in practice on the aggregate revenue growth forecasts; this figure

was plotted between the years of 2001 and 2013, with a peak drop in 2008 during the global

financial crisis

Confirmation bias. Confirmation bias is a cognitive process that discloses why

individuals tend to search out data that affirms their current feelings and neglect or overlook

data that doubts their beliefs (Onsomu, 2014). Confirmation bias takes place when individuals

disregard possibly helpful actualities and assessments that don't concur with their assumptions

(Onsomu, 2014). It influences discernments and basic leadership, leading to undesired results

(Onsomu, 2014). Confirmation bias can be overcome by searching out publications and people

with various sentiments and settle on decisions based on better data (Onsomu, 2014).

Technicians tend to search out data by which their current perspective is supported while

staying away from data that repudiates their conclusion (Nelson, 2014).

This trap influences where technicians go for data as well as how they translate the data they get

- an excessive amount of weight is given to affirming proof and insufficient to disconfirming

proof (Nelson, 2014) Technicians frequently fall into the confirmation trap subsequent to

settling on a venture choice. Confirmation bias characterizes a tendency of an individual for us

to concentrate on data that affirms some previous consideration (Nelson, 2014). Part of the issue

with confirmation bias is that monitoring it isn't adequate to keep technicians from being

affected by it (Nelson, 2014). One means of avoiding confirmation bias is to consult with other

individuals with a broader perspective on the subject matter, and appreciate their input prior to

making any decisions (Nelson, 2014).

Conservatism (belief revision).In cognitive psychology and decision science,

conservatism or conservatism bias is a bias in human data processing (Cutmore, 2015). This

bias describes human belief revision in which persons over-weigh the prior distribution (base

rate) and under-weigh new sample evidence when compared to Bayesian belief-revision

(Cutmore, 2015). In finance, evidence has been found that technical analysts under react to

corporate events, consistent with conservatism (Cutmore, 2015). This includes announcements

of earnings, changes in dividends, and stock splits (Cutmore, 2015). Conservatism bias is a

mental process in which people cling to their prior views or forecasts at the expense of

acknowledging new data (Cutmore, 2015). Conservatism causes individuals to overweight base

rates and to underreact to sample evidence (Cutmore, 2015). Conclusively, they fail to react as a

rational person would in the face of new evidence (Cutmore, 2015).

When conservatism-biased technical analysts do react to new data, they often do so very

slowly (Cutmore, 2015). Recent evidence suggests technical analysts make systematic errors in

processing new data that may be profitably exploited by others (Penman, 2016). When a

company's earnings go up several years in a row, it is generally believed that this trend is going

to continue (Grossman, 2014). Such excessive optimism pushes prices too high and produces

effects that support theory of overreaction (Grossman, 2014). Offering high-quality,

professional advice is probably the best way to help a client avoid the pitfalls of this common

bias (Grossman, 2014). The best strategy for beating Bayesian conservatism when it comes to

products on the shelves is to trust in price-per-unit (Campbell & How, 2015).

Continued influence effect. The continued influence effect is the tendency to believe

previously learned misinformation even after it has been corrected (Seifert, 2014).

Misinformation can still influence inferences one generates after a correction has occurred

(Seifert, 2014). There are a number of ways in which misinformation might be caused,

particularly in the absence of any intention to deceive (Ecker et al., 2014). Technical analysts

are largely affected by the continued influence effect, as the lack of data regarding the stock

market and the changing prices may cause them to make wrong investment decision (Ecker et

al., 2014). The technical analysts might get engaged in disorganized investment management

producing lower returns (Rapp & Braasch, 2014).

Continued influence effect leads the technical analysts to make wrong trading decision

and these decisions could not be corrected even after the correction of misinformation (Rapp &

Braasch, 2014). . There are different mediums that can result in misinformation including media

and internet (Rapp & Braasch, 2014). If the rise and fall in the stocks prices are not portrayed

correctly, it can become a cause of great loss for both the technical analysts and the country

(Rapp & Braasch, 2014). It is difficult to reduce the impact of misinformation (Rapp & Braasch,

2014). However, continued influence effect can be avoided by only relying on the data provided

by the credible sources (Rapp & Braasch, 2014). Before making any investment decision,

technical analysts must make sure that all the data is coming from reliable sources (Rapp &

Braasch, 2014). The impact of misinformation can be reduced by getting warned by the initial

exposure of wrong data and analyzing early that the data provided might mislead (Rapp &

Braasch, 2014). It is necessary that such warnings must explain that how the misinformation

might affect the trade (Rapp & Braasch, 2014).

Declinism. Declinism is the certainty that a general public or foundation is tending

towards decay (Edwards, 2017). Especially, it is the inclination, because of intellectual

inclination, to see the past positively and future contrarily (Edwards, 2017). Technical analysts

may likewise experience the ill effects of this inclination, and may trust that the share trading

system or the stock costs is more terrible at the present time than the stock costs and securities

investment (Edwards, 2017).

Decoy effect. The decoy effect is a cognitive bias which refers to the phenomenon in

which an individual might undergo change in inclination between the first two options when

provided with a third option that is dominated asymmetrically (Fukushi & Guevara, 2015). An

option might be dominant asymmetrically when it is inferior to the other option in some respect

and superior to the other. It has been seen that with the presence of an asymmetrically

dominated option, a bigger section of consumers prefers to opt for the dominating option than

the section of consumers that would have preferred the same option if the asymmetrically

dominated option were not present (Fukushi & Guevara, 2015). The asymmetrically dominated

option acts as a decoy that actually assists in increasing the dominating option preference

(Fukushi & Guevara, 2015). The decoy effect comes into action when the decision theory’s

axiom of independence of irrelevant alternatives is violated in the practical application (Kaptein,

Van Emden, & Iannuzzi, 2016). Decoy effect can be used positively by the technical analysts

for enhancing the trade (Kaptein et al., 2016). The higher stock prices and the lower stock prices

can be compensated by introducing a relatively third irrelevant option (Kaptein et al., 2016).

Denomination effect. The denomination effect is a cognitive inclination identifying with

cash, whereby individuals are more averse to spend bigger bills than their proportionate worth

in minor bills (Antonides & Ranyard, 2017). One way technical analysts can suffer from this

bias is to think like they're purchasing the whole business, instead of just partakes in it

(Antonides & Ranyard, 2017). In the event that cash was no article, an individual could spend

as much as they needed to purchase stock or an entire organization, the offer cost would not

make any difference (Antonides & Ranyard, 2017). The individual would take a gander at the

organization's money streams, future development prospects, and nature of their item to

establish what the whole business is worth (Antonides & Ranyard, 2017). The psychology

behind this bias attempts to keep individuals from settling on vital venture choices (Zielonka,

2004). Eventually, as with numerous subjective inclinations, the way to conquering it is to be

goal and sound, and to keep away from the impedance of feeling in the basic leadership process

(Zielonka, 2004).

Disposition effect. Disposition effect is the tendency of an individual of offering the

winning stocks rapidly and clutching the losing stocks for long (Chang, Solomon, &

Westerfield, 2016) It is thought to be unsafe for the technical analysts because of e capital

addition charges, which are paid by the technical analysts, are expanded by disposition effect

and the profits are decreased even preceding the duties (Rau, 2015). The technical analysts are

enabled by the in the wake of the recommendation of cutting losses and let profits run to get

engaged in an organized investment management, which would result in producing higher

returns (Fischbacher, Hoffman, & Schudy, 2017). A disposition effect coexists with stocks

with present prices less than the original prices of purchase are held by the technical analysts

(Fischbacher et al., 2017). Particularly, the stocks whose prices have increased in the past two

days are sold by the technical analysts (Fischbacher et al., 2017). Disposition effect can be

mitigated for the sales having a realized loss (Fischbacher et al., 2017). The concept that

technical analysts might obtain efficacy from the function of realizing loss on a particular asset

which has gained less consideration in finance because of the time (Fischbacher et al., 2017). A

disposition model is predicted by a realized loss more effectively (Lukas, Eshraghi, & Danbolt,


Distinction Bias. Distinction bias is a type of cognitive bias which refers to the tendency

of an individual to regard the two available options to be more uncommon when assessing them

at the same time than assessing them distinctly (Tsinaslanidis & Zapranis, 2016). Technical

analysts might also suffer from this cognitive bias (Tsinaslanidis & Zapranis, 2016). One of the

criticisms regarding technical analysis is that merely price movements are considered by it,

paying no attention to the basic factors of an organization (Tsinaslanidis & Zapranis, 2016).

Though, it is assumed by the technical analyst that all the factors that might affect the company

are reflected by the stocks prices at any time including the basic factors (Tsinaslanidis &

Zapranis, 2016). It is believed by the technical analysts that the fundamental factors of an

organization, together with the market psychology and the broader economic factors, all are

assessed in the stocks, eliminating the requirement for considering these factors distinctly in

reality (Tsinaslanidis & Zapranis, 2016). The assessment of the price movement is left by it,

which is viewed by the technical theory as a demand and supply product for a specific stock in

market (Tsinaslanidis & Zapranis, 2016). Technical analysts might avoid distinction bias by

making rational decisions (Tsinaslanidis & Zapranis, 2016). The effect of the distinction bias

can be minimized by maximizing the effect of these rational decisions (Hsu, Taylor, & Wang,

2016). Mistakes can be avoided by profound understanding of the processes of thoughts for

overcoming the errors and inefficiencies (Hsu et al., 2016). Better financial decisions can be

made by a technical analyst by getting rid of distinction bias (Hsu et al., 2016). Technical

analysts must also listen to the advice of others while making an important decision and they

must know that they are being influenced by distinction bias if they are told by their colleagues

that while comparing things simultaneously very small difference is made by them (Hsu et al.,


Dunning-Kruger Effect. The Dunning–Kruger impact is a type of an inclination in

which untalented people experience the ill effects of deceptive predominance, erroneously

evaluating their capacity to be much higher than is exact (Sheldon, Dunning, Ames, 2014). The

Dunning–Kruger impact is credited to a metacognitive failure of the untalented to perceive their

clumsiness (Sheldon et al., 2014). On the other hand, exceedingly gifted people tend to think

little of their relative capability, mistakenly accepting that undertaking (Sheldon et al., 2014). A

large portion of analysts have a plan other than the accomplishment of their customers (Sheldon

et al., 2014). At that point the mental pitfalls incorporating confirmation inclination in its

numerous structures exacerbate the issue (Hartwig et al., 2017). The way exchanging is

introduced by the exchanging business on top of our regular mental inclinations, for example, the

Dunning Kruger impact is entirely treacherous.

Duration neglect. Next bias to be discussed is a duration bias which refers to the

psychological examination that there is very little influence of the duration of the painful

experiences on the judgments of an individual of unpleasantness of these experiences (Schurr,

Rodensky, Erev, 2014). According to experiments there are two factors that might affect those

judgments: the stage at which the experience is most painful, and the time required for the pain

to get reduced (Schurr et al., 2014). If less time is required by the pain to get reduced then the

experience is considered to be less painful (Schurr et al., 2014). Duration neglect bias is also

observed in technical analysis (Schurr et al., 2014). The peak and the end-points of the trade are

determined by the traders by concentrating on the holding of a particular stock (Ma et al., 2016).

If the inventory reverses transforms, then it is noted as the peak point for the new trade and end

point is determined when the same level is attained by the inventory to the starting point (Ma et

al., 2016). The traders are enabled by this method to examine the probability of the number of

trading strategies that might be followed by them simultaneously (Ma et al., 2016). For instance,

some shares might have been purchased by the trader in the past in hope of an increase in future

and with the adjustment of prices trades are conducted by him for providing market with

liquidity (Ma et al., 2016). This is a short term plan which might complement the long term plan

(Ma et al., 2016). On the other hand, the trader might also desire to make use of the acquired

short lived data while still following the long term plan (Ma et al., 2016). However, only the total

duration of the trading strategy can be calculated by this method (Ma et al., 2016). It does not

provide any help in calculating the average holding time required by any stock (Ma et al., 2016).

Empathy gap. Empathy gap is the tendency of an individual to think little of the impact

or quality of emotion in others (Li, Rohde, & Wakker, 2017). The foundation of the empathy gap

is that individual-to-individual comprehension depends to a great extent on state of being of an

individual (Li et al., 2017). For instance, on the off chance that an individual is irate, sharp, or

angry, it is hard to envision what being cheerful or settled feels like, and the other way around

(Li et al., 2017).


Endowment effect. Endowment effect is a behavioral bias which refers to the situation in which

the things or products that are already owned by a person are valued more than the products or

things which are not owned by him yet (Ericson & Fuster, 2014). It is also known as divestiture

bias (Ericson & Fuster, 2014). Due to the endowment effect, technical analysts or traders tend to

stick to certain assets due to comfort and familiarity even if these assets turn to be unprofitable or

inappropriate (Ericson & Fuster, 2014). This bias is an example of behavioral bias (Ericson &

Fuster, 2014). While assessing a venture, financial technical analysts put a higher quality on a

speculation they as of now hold than they would on the off chance that they didn't claim the

benefit and could procure it (Ericson & Fuster, 2014). Financial technical analysts are thought to

hold ventures for different reasons, for example, recognition with a position or to maintain a

strategic distance from investment and assessment costs (Ericson & Fuster, 2014). Thus,

speculators put an unreasonable premium in the craved offering cost of a benefit (Ericson &

Fuster, 2014). A typical case of this bias happens when a technical analyst is holding a major

position in an acquired security (Ericson & Fuster, 2014). Speculators might be hesitant to offer

a particular security since they feel unfaithful to friends and family or questionable about settling

on the right choice fiscally (Ericson & Fuster, 2014).

Exaggerated Expectation. Exaggerated expectation is based on the estimates; real-world

evidence turns out to be less extreme than our expectations (Thomsett, 2015). Typically,

technical analysts who exhibit exaggerated expectation will hold securities in their portfolios for

a shorter period than a rational decision maker would (Thomsett, 2015). The rational technical

analysts would appropriately process all incremental data about a security and will take longer

to sell the security as the risk/return profile becomes unfavorable, while the technical analysts

with exaggerated expectation bias will tend to find themselves separate from securities

(Thomsett, 2015). These analysts will overreact to new data and the contradictory views will be

considered early (Thomsett, 2015). Technical analysts with exaggerated expectation bias may

choose to use correct data instead of dealing with the mental stress associated with changing

their views (Thomsett, 2015). Loathe abandoning their original thesis; they will not hold

investments with poor expected returns to the detriment of their investment account balance

(Thomsett, 2015). To correct for exaggerated expectation, technical analysts should be sure to

properly analyze all relevant data (Thomsett, 2015). They should objectively evaluate the

implications of the new data and incorporate it appropriately into a newly constructed view

(Thomsett, 2015). Technical analysts should be wary not to place undue weight on their original

views (Thomsett, 2015).

The figure below is a clear example of exaggerated expectations. The analysts have

expected the half of the companies to exhibit two to eight percent of growth while it never

actually happened.

Figure 9: Goldman Sachs Research estimates, Datastream - this figure displays

unexpected outliers on a consensus sales growth estimate, versus the actuals, ranging from <-

50% to >50%, with actuals not peaking higher than 21%

Experimenter's or Expectation Bias. Experimenter's or expectation inclination is a

tendency of an individual for experimenters to accept, affirm, and distribute information that

concur with their desires for the result of a test, and to question, dispose of, or minimization the

comparing weightings for information that seem to struggle with those desires (Brown, Meer, &

Williams, 2016).. In the event that an organization's income was not surprising, most experts will

concentrate on what they got right as opposed to on where they turned out badly (Thaler, 2016).

The impact of past costs on technical analysts' desires of future value developments is

undisputed (Kempf, Merkle, Niessen-Ruenzi, 2014). Money related investigators routinely

estimate about how specific occasions and examples of business sector movement impact

technical analyst’s desires, and scholarly studies have considered how desires' are framed

(Kempf et al., 2014). A related issue is whether the expectations of the technical analyst and their

negativity or good faith about future value patterns, are educational about the future heading of

the business sector (Kempf et al., 2014). Investigators endeavor to gage the expectations of the

technical analyst and reach inferences about the bearing of the business sector from these

measures (Kempf et al., 2014). One approach to lessen desire inclination is to have no desires.

Be that as it may, a more reasonable methodology is to look at each circumstance and choice as

though it is new and distinctive, and concentrate on disregarding your desires and prior thoughts

(Kempf et al., 2014). At the point when the realities change, be prepared to change with them

(Kempf et al., 2014).


Gambler's fallacy. Gambler’s fallacy is the inclination that influences individuals'

capacity to accurately survey the chances in a circumstance (Jain, Jian, & Jian, 2015). A key

concept of behavioral economics, the gambler’s fallacy is the belief that certain random events

are less likely to happen following an event, or series of events (Jain, Jian, & Jian, 2015). A key

example of the gambler’s fallacy is the coin-flip: in this example, an individual flips a coin

several times and discovers that each flip results in a heads-win (Chen, Moskowitz, & Shue,

2016). It would then be false to assume that the next flip will also result in a heads-win, but

under the gambler’s fallacy, and individual will place money or strength on the heads-win

(Chen et al., 2016). This becomes an issue for economists who fall under this assumption, as it

places faith in randomly occurring events that cannot be controlled, and if the “heads-win” does

not occur, it could result in a loss of capital (Chen et al., 2016).

Hindsight bias. Hindsight bias, otherwise called the knew-it-from-the-beginning impact

or crawling determinism, is the slant, after an occasion has happened, to see the occasion as

having been unsurprising, regardless of their having been almost no target premise for

anticipating it (Joo & Durri, 2015). Insight into the past inclination traps a financial specialist

into trusting that the signs were clear from the start, when in actuality, the signs are evident just

by and large (Joo & Durri, 2015). Numerous individual and institutional speculators depend on

past experience to foresee what's to come (Joo & Durri, 2015). T The best way to deal with

overseeing instability is to enhance crosswise over numerous benefit gatherings and markets,

taking into account one’s capacity to acknowledge a hazard that is both quantifiable and

sensible (Joo & Durri, 2015).


Hot-hand fallacy. The "hot-hand fallacy" is a cognitive bias that is portrayed as the

erroneous certainty that a man who has encountered accomplishment with an arbitrary occasion

has a more noteworthy shot of further achievement in extra endeavors (Suetens, Galbo-

Jorgensen, & Tyran, 2016). The idea has been connected essentially to games. While past

accomplishment at an aptitude based athletic errand, for example, making a shot in baseball can

change the mental conduct and the consequent rate of achievement of a player (Green &

Zwiebel, 2015). . It is an intellectual inclination which is likewise shared by the technical

analysts and the gamblers (Suetens et al., 2016). The analysts trust that the hot hand

misrepresentation and the gambler’s fallacy both stem from an indistinguishable source

(Suetens et al., 2016). It appears like those choices are made by such financial analysts relying

on their idea in regards to the asset administrator of being hot or not (Suetens et al., 2016).

Technical analysts can avoid gambler’s fallacy by settling on the more astute choice which

starts by monitoring the most recent developments of stocks business sectors (Suetens et al.,

2016). Just by concentrating on the rudiments of valuation and attempting to kill the odds of

misfortune through a critical room for give and take would be able to want to accomplish

outsize returns through a similarity of ability (Suetens et al., 2016).

Hyperbolic discounting. Hyperbolic discounting is a cognitive bias which refers to the

inclination for individuals to progressively pick a minor sooner return over a bigger later return

(Kagel & Roth, 2016). At the point when offered a bigger prize in return for holding up a set

measure of time, individuals act less indiscreetly as the prizes happen further later on (Kagel &

Roth, 2016). Hyperbolic marking down has been connected to an extensive variety of

phenomena (Kagel & Roth, 2016). These incorporate failures in resolution, wellbeing results,

and utilization decisions after some time, and individual account choices (Kagel & Roth, 2016).

For instance, speculators may see the chance to make a prompt benefit by exchanging a stock

when clinging to it will be substantially more gainful over the long haul (Kagel & Roth, 2016).

Enormous risks are presented by hyperbolic discounting bias (Kagel & Roth, 2016). For

instance, if the future financial consequences are underestimated by an organization regarding

new governing pressures on the trade then the company might be exposed to governmental

inquiry (Kagel & Roth, 2016). There are large impacts of this on the financial results. Not only

financial numbers are missed by the organization but also may lead to failure in debt

obligations. Hyperbolic discounting cannot be combated easily (Kagel & Roth, 2016).

Technical analysts can combat hyperbolic discounting by considering the future price

movements and the future assets which not an easy task. It suggested by the experts that when

an individual suffers from hyperbolic discounting in any decision then it must be considered by

that person that the decision belongs to someone else (Kagel & Roth, 2016).

Figure 10: Figure to Show (1) Hyperbolic: asset holdings versus (2) Hyperbolic:

consumption - in (1), the baseline with and without borrowing range from -0 to 140, and stay

fairly similar until the Age axis reaches 88; in (2), hyperbolic consumption ranges between 3

and 19, and the Age axis stay somewhat similar until 95.

Identifiable victim effect. The identifiable victim effect is a cognitive bias which

describes the tendency of people to offer a more prominent guide when a particular, identifiable

individual is seen under hardship, when contrasted with a vast, dubiously characterized

individual with the same need (Lee & Feeley, 2016). In finance, hidden taxes are an example of

the identifiable victim effect (Loureiro, 2014). The occurrence of any specific tax might be

unclear because the burden is shifted from nominal payer to anyone else due to the price

changes produced by taxes (Loureiro, 2014). The actual incidence of different sorts of taxes has

been studied by the economists traditionally but less attention has been paid to the nominal

payer (Loureiro, 2014). Though, the politics and the psychology of taxation concentrate on the

person who has to pay tax rather than the person who bears the burden (Loureiro, 2014).

The burden is ascribed by the public to the nominal payer and taxes that are not paid by

them explicitly are ignored (Loureiro, 2014). For instance, VAT tax is considered to be the part

of the cost of any product by the customers (Loureiro, 2014). In the United States, adaptation of

VAT tax is a worry that the resistance for raising the taxes through VAT is much less due to the

fact that it is hidden. An important role is played by the identifiable victim effect in different

domains including the public finance (Loureiro, 2014). It plays an important role in technical

analysis, stock market and taxes (Loureiro, 2014). These examples result from covering

identifiable targets by means of hidden taxes (Loureiro, 2014).

IKEA effect. The IKEA effect happens when customers put an unequally high esteem on

items they somewhat made (Shmueli, Pliskin, & Fink, 2016). The name gets from the Swedish

furniture retailer IKEA, which offers numerous furniture items (Shmueli et al., 2016). The IKEA

effect is yet another motivation behind why it is mentally hard to offer exaggerated stocks (Prast

et al., 2015). The most known case of the IKEA effect might originate from individuals who stay

with an awful business thought far, far past when they ought to have abandoned it (Prast et al.,

2015). There are large numbers of techniques by which the technical analysts might get rid of

IKEA effect (Butler, 2015). The best procedure for beating the IKEA effect is to believe the

numbers, not one’s gut (Butler, 2015).

Illusion of validity. Illusion of validity refers to the belief that additional information for

prediction is produced by the further obtained information in spite of the fact if it really does not.

Kahneman and Tversky (1996) saw a comparative phenomenon in contemplating the work of

technical analysts. S. It appears that a considerable measure of stock brokers would indicate

pretty much as great or better results in the event that they did not significantly try coming to

work. Kahneman and Tversky (1996) once investigated the execution of a gathering of

speculation counselors, finding that none of these consultants figured out how to out-play out the

others when their outcomes were thought about over various years, recommending that theirs is a

round of chance more than aptitude (Kahneman & Tversky, 1996). However consistently,

rewards were recompensed in light of individual execution, and the best-performing counselors

every year doubtlessly praised themselves on the outcomes they had accomplished for their

customers (Kahneman & Tversky, 1996). These financial and mental studies demonstrate that it

is hard to shake individuals' faith in their own forces of expectation, or in the legitimacy of the

instruments they use to decide, notwithstanding when those apparatuses are appeared to have no

prescient force (Kahneman & Tversky, 1996). Parties and their lawyers make forecasts of

accomplishment taking into account lacking or notwithstanding deceptive or useless data (Ates et

al., 2016). Parties accept, justifiably, in the legitimacy of their positions; and lawyers are relied

upon to show trust in their customers' cases, and also in their own particular aptitudes (Ates et

al., 2016). It is likewise a dubious thing to endeavor when the go between is in the meantime

attempting to show sympathy and comprehension for difficulty of every group (Ates et al.,


Illusory correlation. Illusory correlation is a bias which refers to the inaccurate

perception of an individual regarding the relationship between two events that are not related. In

spite of the fact that the phenomenon of connection among the behavioral finance has not been

discussed earlier, existing trial concentrates on bolster its importance. Kroll et al. (1988), whose

subjects pick among resources with returns drawn from typical conveyances, find that, "even ...

where the subjects were told and could really confirm that the stock value changes were

irregular, a large portion of despite everything they created, kept up for some time, disposed of,

and produced new theory about nonexistent patterns."

Additionally, De Bondt (1993), whose subjects gauge stock costs and trade rates in a

"specialized examination diversion," infers that "individuals are inclined to find patterns in past

costs and to expect their continuation," notwithstanding when, "value changes are exceedingly

erratic." Neurologists would be not any more shocked than analysts to discover that dealers at

times make deceptive relationships among outline examples and returns, since mind science

highlights a neurological preference to discover designs (De Bondt, 1993).

Impact bias. Impact bias is one of the most complicated types of cognitive bias

(Buechel, Zhang, & Morewedge, 2017). It refers to the propensity for individuals to

overestimate the length or the power of future feeling states (Buechel et al., 2017). Individuals

frequently overestimate the force and length of their enthusiastic responses to future occasions

(Buechel et al., 2017). This inclination is known as the impact bias, which is only one of

numerous subjective inclinations (Buechel et al., 2017). As a result of the impact inclination,

individuals neglect to settle on the right choices about their passionate responses to future

occasions (Buechel et al., 2017). In a survey by Wilson and Gilbert (2013), the creators express

that the effect inclination is perfectly healthy (which is really the title of their paper). This post

gives various illustrations, and it looks at the causes, of the effect predisposition. Here are two

reasons for the impact inclination (Wilson & Gilbert, 2005):

● Focalism: People tend to overestimate the amount they will consider the occasion

later on, and in the meantime, they think little of the extent to which different occasions will

impact their contemplations and emotions. So individuals get excessively centered around a

specific occasion and its passionate effect

● Sense-production: People are splendid sense-creators, and by comprehending

occasions, individuals adjust candidly to them. Be that as it may, individuals neglect to perceive

how quick they will understand novel or startling occasions once they happen, and thus,

individuals overestimate their enthusiastic responses to such occasions (Wilson & Gilbert,


Information bias. Information bias, also known as insensitivity to sample size, is a sort

of cognitive bias, and includes a deformed assessment of data (Kaplan, Chambers, & Glasgow,

2014). Information bias involves the belief of an individual that the larger the information

obtained for making any decision the better it is, even if the additional information that is

obtained by an individual is not relevant to the decision (Kaplan et al., 2014). Technical analysts

might also deal with information bias while dealing with stocks and assets (Gelman et al.,

2014). The incomplete information of the technical analysts regarding the stock market and the

price movements might lead them to make a wrong decision and make errors in recording the

data (Gelman et al., 2014). This will lead to the development of overload and pressure by

encouraging the analysts for seeking more and more information (Gelman et al., 2014). This

bias can easily be avoided by the technical analysts (Gelman et al., 2014). It is necessary that

the technical analysts must first think that what type of information is required by them for

making any important decision and they must try to use only the necessary information (Gelman

et al., 2014).

Less-is-better effect. The less-is-better impact is an inclination inversion that happens

when the lesser or littler option of a suggestion is favored when assessed independently,

however not assessed together (Faghihi et al., 2015). It is vital that merchants ought to expand

among various resource classes. Diverse resources, for example, stocks and bonds, won't

respond similarly to unfavorable occasions. A blend of advantage classes will diminish a

portfolio's affectability to market swings. For the most part, the security and value markets

move in inverse bearings, along these lines, if a portfolio is differentiated crosswise over both

regions, disagreeable developments in one will be counterbalanced by positive results in another

(Trendado et al., 2014). These items can be extremely convoluted and are not intended to be

made by amateur or little technical analysts (Trendado et al., 2014). Enhancement won't keep a

misfortune, yet it can decrease the effect of extortion and awful data on a portfolio (Durnev et

al., 2003). Owning five stocks is superior to anything owning one, however there comes a

moment that adding more stocks to a portfolio stops to have any kind of effect (Durnev et al.,


Loss aversion. Loss aversion bias is the tendency of an individual to disdain losing

significantly more than they appreciate winning (Levy, 2015). It is not needed that proficient

technical analysts be informed that loss is mentally twice as intense as increases (Levy, 2015).

Due this loss aversion bias, stop loss is neglected by the beginners (Levy, 2015). It is seen when

loss increasingly pose a threat than additions of indistinguishable greatness and individuals

concentrate more on the potential loss. This sounds entirely self-evident, yet can trading can be

affected by it (Levy, 2015). It is a huge motivation behind why trade is quitted by the technical

analysts too soon and don't figure out how to augment their increases in winning investments

(Levy, 2015). Tversky and Kahneman (1979) discussed bias and figured what is known as the

prospect hypothesis in 1979. They found that loss is felt somewhere around two and more than

two times more than additions (Tversky & Kahneman, 1979). This then leads a great deal of

technical analysts towards inaction as opposed to activity, and they miss a considerable measure

of chances.


● Deviation from exchanging arrangement

● Exit investment s too soon

● Keep stops too tight and get whipsawed

● Leads to the trepidation of taking an investment (Tversky & Kahneman, 1979).

Money illusion. Money illusion is a solid inclination which is confronted by every

individual every day (Fisher, 2014). Regardless of the possibility that if an individual not

putting cash in the stocks, he or she can experience the ill effects of money illusion (Fisher,

2014). Price illusion or money illusion contends that individuals have a tendency to decipher

costs and money related sums in nominal terms, rather than genuine terms (Fisher, 2014).

Accordingly, the purchasing power is confused by the people with the nominal power (Fisher,

2014). This refinement is vital, as a specific measure of cash numerous years prior is not worth

the same sum today (Fisher, 2014). The fundamental motivation behind why this is the

situation, is a direct result of the impact of expansion (Fisher, 2014).


Negative bias or negative effect. Negative effect or negative bias can be experienced by

different individuals in different cases. Here are a few illustrations:

● Negative encounters have a tendency to be more vital than positive ones.

● The mind tends to be careful and attentive.

● For positive encounters to resound, they need to happen a great deal more as often

as possible than negative ones (Van der Kolk, 2014).

The mind responds more unequivocally to negative jolts than to positive boosts (Van der

Kolk, 2014). Considers demonstrate that there's a more prominent surge in electrical action in

the mind when an individual sees a photo of something negative than when seeing a photo of

something positive (Van der Kolk, 2014). At the point when the mind of an individual wander

it will probably recall something that might made that individual upset or furious, rather than

reviewing something by which he might feel cheerful and full with pride (Van der Kolk, 2014).

People built up an antagonism predisposition, that is, they developed to see and react all the

more persuasively to the antagonistic, since that helped our predecessors to stay alive (Van der

Kolk, 2014).

Neglect of probability. The neglect of probability, a subjective inclination, is the

propensity to dismiss likelihood when settling on a choice under instability and is one

straightforward way in which individuals consistently damage the regulating rules for basic

leadership (Slovic, 2016). Little dangers are regularly either dismissed altogether or massively

misrepresented; the continuum between the extremes is overlooked (Johnson, 2016). The term

neglect of probability was authored by Sunstein (2002). There are numerous related courses in

which individuals damage the regularizing tenets of basic leadership as to likelihood including

the knowledge of the past predisposition, the disregard of earlier base rates impact, and the

player's paradox (Sunstein, 2002). Compelling occasions by definition have low probabilities of

event (Sunstein, 2002). In any case, low likelihood does not equivalent zero likelihood. At the

point when forceful feelings are activated by a danger, individuals demonstrate a meaningful

propensity to disregard a little likelihood that the danger will really happen as expected

(Sunstein, 2002). Exploratory proof, including electric stuns and arsenic, bolsters this case, as

does genuine confirmation, including reactions to relinquished perilous waste dumps, the

pesticide Alar, and Bacillus anthracis (Sunstein, 2002).

The subsequent "likelihood disregard" has numerous ramifications for law and strategy

(Sunstein, 2002). It recommends the requirement for institutional limitations on arrangements in

view of ungrounded fears; it additionally demonstrates how government may successfully

attract consideration regarding dangers that warrant extraordinary concern (Sunstein, 2002).

Likelihood disregard clarifies the establishment of certain enactment, in which government, not

as much as common individuals, experiences that type of disregard (Sunstein, 2002). At the

point when individuals are dismissing the way that the likelihood of mischief is little,

government ought to for the most part endeavor to educate individuals, as opposed to take into

account their unreasonable trepidation (Sunstein, 2002). In any case, when data won't help,

government ought to react, at any rate if examination proposes that the advantages exceed the

expenses (Sunstein, 2002). The reason is that trepidation, regardless of the fact that it is

unreasonable, is itself a critical issue, and can make extra noteworthy issues (Sunstein, 2002).

Normalcy bias. Normalcy bias is a mental state individuals enter when confronting the

likelihood of a disaster or emergency (Fruehwald, 2017). The basic inclination behind the

theory is that since something has never happened, it is expected that it never will (Fruehwald,

2017). It causes individuals to think little of the likelihood of a debacle happening and its

conceivable impacts (Fruehwald, 2017). This regularly brings about circumstances where

individuals neglect to satisfactorily get ready for a calamity (Linnemayr et al., 2016). It

additionally brings about the powerlessness of individuals to adapt to a catastrophe once it

happens (Linnemayr et al., 2016).

Individuals with a commonality inclination experience issues responding to something

they have not experienced some time recently (Linnemayr et al., 2016). Individuals additionally

have a tendency to decipher notices in the most idealistic way imaginable, persuading

themselves that it is a less major circumstance (Linnemayr et al., 2016). In this way, they feel

that everything will be okay (Linnemayr et al., 2016). Ostrich effect and normalcy bias are

similar, the shirking of tolerating dangers by imagining they don't exist (Valdez, Ziefle, &

Sedlmair, 2017). Having a solid regularity predisposition will keep technical analysts from get

ready or making arrangements for price movements and change in the market trends (Murata,

Nakamura, & Karwowski, 2015).

Omission bias. The omission inclination is an affirmed type of subjective inclination

(Fujita, 2017). It is the inclination to judge unsafe activities as more regrettable or less good

than similarly destructive omissions (inactions) since activities are clearer than inactions (Fujita,

2017). It is petulant with respect to whether this speaks to an orderly blunder in considering, or

is upheld by a substantive good hypothesis (Cox, Servatka, & Vadovic, 2017). For a

consequentialist, judging destructive activities as more regrettable than inaction would to be

sure conflicting, however deontological morals may, and regularly draws, an ethical refinement

amongst doing and permitting (Cox et al., 2017). The inclination is typically showcased through

the trolley issue (Zamir, 2014). This inclination is especially predominant in auto deals, where

venders trust the mantra "sold as seen" offers them some kind of lawful assurance (Zamir,


Ostrich effect. Ostrich effect is a cognitive bias that refers to the tendency of an

individual to avoid real situation (Kahn, 2015). There is a misconception regarding the

individuals from different sectors that their individual VPs had mushroomed into divisional

clash (Kahn, 2015). There was the congregation leading group of trustees torn over terminating

a priest well known with the adolescent yet not with chapel senior citizens (D’Elia, 2016). It

worked out that the issue was not the clergyman at everything except rather the battles inside

board itself between its more seasoned and more up to date individuals (D’Elia, 2016). There

was the clinic that needed to enable center administrators who routinely held up to be advised

what to do (D’Elia, 2016). The genuine story lay with the senior supervisors who were

themselves battling with the CEO over the power to decide—battles that were misshaped and

amplified through the positions of the center chiefs (D’Elia, 2016). There were some extremely

keen individuals in these settings (D’Elia, 2016). They knew how to take complex issues and

make sense of the right arrangements (D’Elia, 2016). Be that as it may, they couldn't do as such

when it went to their own particular connections (D’Elia, 2016). They observed one thing that

was directly before them and couldn't see whatever else (D’Elia, 2016). The issues they

indicated bore little connection to the genuine trouble (D’Elia, 2016). Their genuine issues had

moved starting with one place then onto the next. There is a summed up, steady and

unsurprising grouping of occasions that, unless intruded on, leads safe issues between

individuals at work to end up hurtful. This succession is known as The Ostrich Effect (D’Elia,


The fundamental succession is this:

● People have troublesome minutes with each other

● Something about those minutes makes them restless

● People deflect their looks from the wellspring of their distress

● They affix rather after convincing diversions that permit them to express feelings

activated by the troublesome minutes—however not need to manage those feelings or minutes

● This gets under way rushes of fake issues among individuals whose sources and

arrangements stay obscure

● People then work on the wrong issues, which heighten and spread to include

others (D’Elia, 2016).

Outcome bias. Outcome bias is an intellectual predisposition that empowers us to judge

our basic leadership in view of the aftereffects of the procedure as opposed to the nature of the

procedure itself (Konig-Kersting et al., 2016). This has been observed in a great deal with poor

administrators (Konig-Kersting et al., 2016). A supervisor who settles on a choice in view of

"gut nature" - when his group are firmly exhorting him in one heading and the chief goes the

other way - is going to consider their procedure to be a decent one in the event that they get a

positive result from it (Konig-Kersting et al., 2016). It is imperative for us to be really basic in

the way one assesses their activities. Rather than concentrating on results, one has to

concentrate on the procedure all in all (Konig-Kersting et al., 2016).

By assessing the procedure and in addition the result, one can settle on better choices later on

(Konig-Kersting et al., 2016). In the same way as other intellectual predispositions, it can be

difficult to handle outcome inclination without anyone else's input (Konig-Kersting et al., 2016).

Pareidolia. Pareidolia is a mental phenomenon including a jolt (a picture or a sound)

wherein the psyche sees a commonplace example of something where none really exists

(Richards, 2014). Pareidolia is observed in technical analysis and chart reading in finance

(Richards, 2014). Significant effects of Pareidolia have been observed by the academics who

analyze chart patterns, particularly the charts based on technical analysis (Richards, 2014).

Pareidolia was once considered as a side effect of psychosis, yet is presently perceived as a

typical, human propensity (Richards, 2014).

Carl Sagan hypothesized that hyper facial recognition originates from a transformative

need to perceive - frequently rapidly - faces. He wrote in his 1995 book, The Demon-Haunted


"When the newborn child can see, it perceives countenances, and we now

realize that this ability is hardwired in our brains. Those newborn children who a

million years prior were not able perceive a face grinned back less, were more

averse to win the hearts of their folks, and less inclined to thrive." (Sagan, 1995)

Humans are not the only one in their mission to "see" human appearances in the ocean of

visual prompts that encompasses them. For a considerable length of time, researchers have been

preparing PCs to do likewise. What's more, similar to people, PCs show Pareidolia (Sagan,


Pessimism bias. Pessimism is an impact in which individuals overstate the probability

that negative things will transpire. It stands out from positive thinking inclination (Liu & Bates,

2014). Negative technical analysts diminish the measure of their business sector orders because

of the misperception of the desire, i.e. in the event that they got a positive sign they buy a littler

amount though on the off chance that they got a negative sign they offer a bigger amount (Liu &

Bates, 2014). In the event that the general effect of the misperception of technical analyst is to

expand the total request flow, the levelheaded business sector producers' response is to diminish

the value capacity by a sum relative to this additional positive total request flow as this request

flow is not connected with the estimation of the hazardous resource (Liu & Bates, 2014).

On the off chance that the business sector producers are themselves hopeful or

pessimistic, their misperception of the desire has the inverse effect to the effect of the

misperception of technical analyst (Prosad, Kapoor, & Sengupta, 2015). A negative business

sector producer shifts down the value capacity (Bogliacino, Piva, & Vivarelli, 2014). The

second effect is because of the way that both the improbable dealers and the sensible technical

analysts may exchange pretty much on their private data (Bogliacino et al., 2014). Realizing

that, a reasonable business sector creator changes the business sector profundity in like manner

(Bogliacino et al., 2014). The business sector profundity is likewise affected by the business

sector creators' misperception of the fluctuation of earlier data (Bogliacino et al., 2014).

Skeptical business sector producers set a littler business sector profundity than sensible ones

(Bogliacino et al., 2014). Cynical business sector producers imagine that the earlier data is less

exact than it is and in this manner trusts that the educated private data is more significant than it

is in actuality (Bogliacino et al., 2014).

Planning fallacy. Planning fallacy is a cognitive bias which refers to the tendency of an

individual to undervalue the time required for completing maximum tasks (Buehler & Griffin,

2015). For instance, if is predicted by an individual that he might require three weeks for

completing a given task, but a month might be required for completion of that task (Buehler &

Griffin, 2015). This fallacy has been observed in many areas including finance and technical

analysis (Kasemsap, 2015). Planning fallacy is correlated to both illusion of control and

overconfidence bias and determines the tendency of an individual of underestimating the cost

and time required for completion of a particular project (Kasemsap, 2015). The attention of an

individual might get diverted by the unforeseen things and the time required for the completion

of a project might extend (Kasemsap, 2015).

Most technical analysts ignore the impact of uncontrollable factors on the project

(Hoffman & Shefrin, 2014). It is necessary that an individual must stay on track after making

any plan (Hoffman & Shefrin, 2014). The external market forces and price movements always

keep changing but the plan must not be dumped with the changing market trends rather the

approach or plan must be change in accordance with the trends for staying on track (Hoffman &

Shefrin, 2014). A static strategy is not applicable always. For instance, the systematic

investment plans is an example of such fallacy (Hoffman & Shefrin, 2014). The systematic

investment plans are functional only in specific conditions of market (Hoffman & Shefrin,

2014). Due to this reason, the systematic investment plans are dumped by a large number of

investors during the stagnant period of market (Hoffman & Shefrin, 2014). This fallacy can be

avoided by research and reading the solutions provided by the experts. However, there is a

possibility that an error might be committed by experts and the reviews that are available online

might be biased. Therefore products and information source must be selected wisely by them.

Another way to beat planning fallacy is the reference class forecasting.

Pro-innovation bias. A pro-innovation bias is the conviction that a development ought to

be received by entire society without the need of its adjustment (Lee, Woo, & Joshi, 2017). The

champion of development has such solid inclination for the advancement, that he/she may not

see its impediments or shortcomings and keeps on advancing it in any case (Lee et al., 2017). It

is vital to note that there are special cases to the genius advancement inclination, intense not

unmistakable in the standard administration talk of development (Lee et al., 2017). More than

thirty years prior Rogers (1983) highlighted different dangerous inclinations in advancement

dispersion research (counting the master development inclination) and saw that exclusive 0.2 %

of advancement dissemination articles tended to results of development. Rogers (1983)

consequently condemned advancement considers for survey outcomes of development as

positive, for not having created satisfactory strategies for investigating results and for accepting

that results are hard to gauge.

Later, Abrahamson (1991) contended that a distrustful perspective of development had

risen. He proposed a more extensive perspective of development that consolidates investigations

of advancement that emphasis on how actually wasteful developments are diffused and how in

fact effective advancements are rejected. Be that as it may, it appears as the wary perspective on

development, that Abrahamson anticipated, never picked up territory in the field of

advancement administration research as the star advancement inclination still wins

(Abrahamson, 1991). Taking a more distrustful or maybe more nuanced way to deal with

advancement would be vital as development is not a fringe idea, but rather has fairly developed

into a worldwide general venture that is gotten by a wide assortment of associations and social

orders (Abrahamson, 1991). In this way its outcomes may influence numerous at all levels of

society. In question is the manner by which individuals can discuss the future, what digressive

recourses are made accessible in the development of future directions (Abrahamson, 1991). The

commitment will be a procedure for a more intelligent talk on development in administration

writing, above all asking what impacts the advancement talk makes and what sort of results

development may prompt (Abrahamson, 1991).


Projection bias. Projection bias is an element in human intuition where one conceives

that others have the same need, demeanor or certainty that one harbors oneself, regardless of the

possibility that this is unrealistic to be the situation (Gerrans, Faff, & Hartnett, 2015). There are

numerous fascinating implications of projection bias over such adaptations (Gerrans et al.,

2015). Firstly, exaggerated emotions of loss aversion bias are caused by projection bias; the

extent of the endowment effect is magnified by it (Gerrans et al., 2015). It can be said that valid

expectations leads to the endowment effect that more pain will be caused by the losses than the

endowment effect is helped by the gains (Gerrans et al., 2015). These might be considered to be

the exaggerated reaction to the real inclinations (Gerrans et al., 2015). Possibly more crucial is

that technical analysts might not successfully identify the projection bias (Gerrans et al., 2015).

Due to this failure wrong purchases and choices are made by the technical analysts with a

wrong sense of their transformability (Gerrans et al., 2015).

Pseudocertainty effect. The pseudo-certainty effect is inclination of an individual to see

a result as certain while in reality it is uncertain (Schiliro, 2017). It is seen in multi-stage

choices, in which assessment of results in past choice stage is disposed of when making a

choice in consequent stages (Schiliro, 2017). Financial specialists will restrict their danger

introduction on the off chance that they think their portfolio/contributing returns will be certain

– basically ensuring the lead – yet they will look for more hazard on the off chance that it would

seem that they are setting out toward a misfortune (Schiliro, 2017).

Recency effect. At the point when gas costs fall, offers of substantial game utility

vehicles and trucks tend to rise. Consumers trust what has happened as of late will keep on

happening (Lebiere et al., 2016). The phenomenon additionally exists with contributing

(Lebiere et al., 2016). Retail financial specialists tend to chase venture execution, frequently

heaping into a benefit class pretty much as it is topping and going to turn around lower (Lebiere

et al., 2016). Since the speculation has been moving higher as of late, financial specialists trust

that will remain the case (Lebiere et al., 2016). Past execution can be a solid driver, as few

individuals need to feel deserted (Almilia & Wulanditya, 2017). In the business sector, this

psychological inclination can show in over-gaining from late misfortunes (Almilia &

Wulanditya, 2017). Humans are more influenced by late misfortunes. In this way, in attempting

to enhance our exchanging results, individuals stay away from exchanges that help us to

remember our late misfortunes (Almilia & Wulanditya, 2017).

Regressive bias. A specific perspective in which high probabilities and high values are

overvalued while low probabilities and low values are undervalued is termed as conservatism or

regressive bias (Boserup & Pinje, 2014). At the point when confronted with money related

choices, the decisions of the technical analyst regularly wander from the "ideal" decisions

recommended by customary finance (Boserup & Pinje, 2014). The imperfect decisions regarding

investment are regularly established in behavioral inclinations (Boserup & Pinje, 2014). Reviews

from past psychological blunders are inclinations that stem from fundamental factual,

information preparing, or memory mistakes (Fritz & Weinhardt, 2016).

Normally, technical analysts who display conservatism will hold securities in their

portfolios for a more extended period than an objective leader would (Fritz & Weinhardt, 2016).

The objective technical analysts would suitably handle every single incremental information

around a security and offer the security when the danger/return profile gets to be unfavorable,

while the technical analyst with conservatism inclination will tend to get them "wedded" to

securities (Fritz & Weinhardt, 2016). Technical analysts will underreact to new information and

will be moderate to consider a conflicting perspective (Fritz & Weinhardt, 2016). Much more

dreadful, technical analysts with conservatism inclination may utilize mistaken information as

opposed to managing the mental anxiety connected with changing their perspectives (Fritz &

Weinhardt, 2016).

Despise to surrender their unique proposal; they will hold ventures with poor anticipated

that profits would the impairment of their speculation account equalization. To rectify for

conservatism, technical analysts ought to make certain to appropriately break down every single

significant data (Fritz & Weinhardt, 2016). Technical analysts ought to equitably assess the

ramifications of the new information and join it suitably into a recently developed perspective

(Fritz & Weinhardt, 2016). Technical analysts ought to be attentive not to place undue weight

on their unique perspectives (Fritz & Weinhardt, 2016). They ought to dependably be

considering "how can this new information influence the venture standpoint?" They ought to

abstain from letting the greatness of the psychological cost required to handle new information

direct the amount of consideration is paid to it (Fritz & Weinhardt, 2016).

Restraint bias. Restraint bias is a cognitive bias which refers to the tendency of an

individual to overestimate their capacity to control impulsive conduct (Moss, Wilson & Davis,

2016). The appearance of impulsive behavior might be prompted by the expanded discretion

belief and expanded lack of caution (Moss, Wilson & Davis, 2016). In this way, compulsion is

affected by the restraint bias (Moss, Wilson & Davis, 2016). Somebody may try different things

with medications; basically in light of the fact that they trust they can oppose any potential habit

(Moss, Wilson & Davis, 2016). An individual's powerlessness to control or their enticement can

originate from a few distinctive instinctive motivations (Moss, Wilson & Davis, 2016).

Instinctive driving forces can incorporate appetite, sexual excitement, and weakness

(Vohs, 2015). These motivations give data about the present state and conduct expected to keep

the body fulfilled (Vohs, 2015). For instance, technical analyst might overvalue their ability of

controlling their impulses (Kemps & Tiggermann, 2015). It has been show by the studies that

when the smokers intend to quit smoking their ability to refuse cigarette when appealed is

overestimated by them (Kemps & Tiggermann, 2015). Similar is the case with the technical

analysts when considering the temptation for doing something foolish during the busts and

bubbles of market (Ledgerwood & Verlinda, 2017). There are some stocks that are found

irresistible by the traders despite of the fact that these stocks might not connect better with the

rest of the portfolio of that particular trader (Ledgerwood & Verlinda, 2017). Restraint bias can

be overcome or avoided by the technical analyst or the traders by staying entirely away from the

stocks which they know they should not be investing in (Ledgerwood & Verlinda, 2017). It

implies that restraint bias can be avoided by ignoring literature related to stocks. The traders

must also avoid watching the television programs related to stocks and by training their mind

for avoiding the entire subject (Ledgerwood & Verlinda, 2017).

Rhyme as reason effect. In the literal sense, rhyme as reason means statements

presented in rhyming language are more likely to be accepted and approved as truth as

compared to plainly presented facts (Okpych & Yu, 2014). In general terms, it means the facts

that sound more effective in terms of aesthetics are more likely to be believed and accepted

(Okpych & Yu, 2014). Therefore adding an aesthetic quality to an idea or perception adds

reliability and authenticity in it for the viewer or observer (Okpych & Yu, 2014). The technical

analysts usually remember the facts and figures presented to them in a way that impresses their

aesthetic sense (Damodaran, 2016). The more intriguing the aesthetic effect of the presentation

or script seems to them, the more convinced they will be (Damodaran, 2016). Therefore, their

analysis will surely be biased as they will favor the facts presented to them in a more attractive

and manipulative way (Damodaran, 2016). They will end up giving more coverage and

exposure to the companies which focus on such strategies to get the attention and approval,

while pushing others back in the line (Damodaran, 2016). For making a neutral point through

the analysis it is essential to judge the organizations on the basis of similar grounds and by

grounds it does not meant that the one with the stronger manipulative techniques has a higher

chances of being better or getting a more progressive future in economic terms (Damodaran,


Risk compensation / Peltzman effect. It is a generally observed human behavior that if

an individual takes a certain safety precaution, they tend to become far more confident than they

maybe should be (Lv et al., 2015). This means they start taking chances and risks much higher

than they are supposed to take (Lv et al., 2015). Like using a seat belt makes them so confident

about their safety from accidents that they start driving quite speedily ad rashly as compared to

before (Lv et al., 2015). This often results in severe damages because the individual does not

understands the risk and overestimates the extent of safety that a certain precaution provided (Lv

et al., 2015). This is often observed in the corporate world as well.

Companies often downsize after estimation of the necessary staff members for a safe and

smooth operation (Styhre, 2017). Following this, management may come to realize that they are

actually falling short of the staff members (Styhre, 2017). This is because of overconfidence in

one’s capabilities of managing the tasks without certain employees (Styhre, 2017). Similarly, it is

quite possible that after taking certain significant data into account analyst discard the rest of it

just because he or she believes that it is of no use (Cheng, Hong, & Scheinkman, 2015). Later on

the results deduced from the limited analysis can prove that certain detailed facts and figures

were required for a complete determination of the whole scenario through technical evidence

(Cheng et al., 2015). The analysts need to plan the process of his or her analysis before carrying

it out (Cheng et al., 2015). The figure below elaborates how risky behavior in business can

prove to be highly costly or highly profitable. It is just a matter of taking chances with minimum

probability of stability and predictability.

Figure 11: All Companies Risk - this scatter diagram shows how the prevalence of risky

business evolves from zero performance to high company performance, but prevalence of risky

practice also grows in conjunction with either trends in high and low performance.

Selective perception. Selective perception is used to elaborate the biased behavior

according to which a person ignores the ideas and practices that oppose personal perceptions,

while highlighting and remembering the ideas and practices that mirror individual approach

(Doneva, 2017). Similarly, if a technical analyst finds a company to be complying with his

approach, he or she will happily highlight his achievements and will conceal his flaws and

drawback in strategic planning and execution as well as product and service quality (Slovic,

2016). On the other hand, if a company seems to be adapting ways that are opposite to the

perceived comfort level of the analysts, he is more likely either to forget the positive

observations and findings about it or to intentionally ignore the facts and figures that prove its

progress and lead over other competitors (Slovic, 2016).

This shows clear sign of favoritism in technical analysis because two companies are

being analyzed and treated differently while their level of progress proves to be the same

(Schwenk, 1986). This means that the technical analysts’ perceptions force him to prioritize one

company over the other merely on the basis of his personal likes and dislikes and no logical

evidences and proofs (Schwenk, 1986). This usually results in biased inferences and falsified

recommendations concluded. It must be avoided to witness clear and to-the-point analysis as

required by the business entities (Schwenk, 1986). For this purpose the technical analysts are

required to put their preferences and priorities behind while valuing the principles of fairness

and justice that frame an honest and useful technical analysis (Schwenk, 1986). Technical

analysis is supposed to be in the form of clear presentation of facts and figures to make the

whole picture clear to the readers and selective perception must not be allowed to blur that

picture (Schwenk, 1986).

Semmelweis reflex. The ideas and practices that contradict the older established facts are

usually repelled and rejected by the people who belong to older schools of thought (Fedoroff et

al., 2016). This means that mostly old aged individuals take new inventions and discoveries as

challenges and instead of adapting to them they try to fight them to avoid their entrance in their

life as an essential part (Fedoroff et al., 2016). Old people are more likely to show rigidness

towards their beliefs and ideas and they don’t easily welcome the idea that opposes their

legendary perceptions (Fedoroff et al., 2016). Sometimes the older practices are respected and

viewed as asset so the new inventions are found to be damaging (Fedoroff et al., 2016). This is

known as Semmelweis reflex (Fedoroff et al., 2016).

Subadditivity effect. When entities are observed and analyzed individually their impact

and performance stands alone to have a greater impact (Wong & Wong, 2014). If all separate

entities are collected to carry out a collective function, their performance is usually lesser in

magnitude as compared to the sum of their individual performance (Wong & Wong, 2014).

When individual level experiments are performed in order to analyze the efficiency of each

entity the above mentioned reality is overlooked (Wong & Wong, 2014). The performance level

of each entity is noted and assumed to be added up to form an expected sum to execute the

required performance (Wong & Wong, 2014).

Therefore, these assumptions lead to a disappointment when the summed performance

turns out to be comparatively less efficient (Wong & Wong, 2014). When a process is judged on

the basis of the addition logic the results will always come out to be negative (Shanteau, 1974).

Thus the analysis can be safely believed to be biased (Shanteau, 1974). Each of the entities is

ideally expected to support the other one thus allowing it to perform its function perfectly but in

the real life nothing happens perfectly as expected (Yang, Narayanan, & De Carolis, 2014).

Instead of making assumptions on the basis of individual performance of each entity, the

combined process must be observed to figure out the efficiency of each entity in the group

before prediction of the failure of poor performance of the process (Yang et al., 2014). The

dependent factors must be catered for and it must be noted that what elements are deteriorating

the efficiency of each entity in order to justify the deterioration in the process (Yang et al.,

2014). For ensuring the process to be fair and independent from the subadditivity effect the

properties of individual entities must be known to the analyst so that he could identify where the

problem lies and does notfail to figure out the mechanism while making a neutralized analytical

decision (Yang et al., 2014).

Time-saving bias. The cognitive assumptions are usually quite different from the

practical facts and figures (Carpena et al., 2015). Calculating that increasing the length of a

pendulum will increase the time period it takes to complete a complete motion but there are

several factors that can influence the performance of the pendulum rendering a time extension

than expected (Carpena et al., 2015). This means practical scenarios differ from ideal world and

conceptual assumptions in terms of time consumption (Carpena et al., 2015). Individuals often

end up overestimating the improvement brought in the speed by increasing the support required

but that is quite tougher to achieve in real life scenarios (Svenson & Eriksson, 2017).

For example, if a project is estimated to take four months for completion with ten men as

the workforce, it is believed that doubling the workforce can half the time required to complete

the project (Svenson & Eriksson, 2017). However, in reality the time might be saved but never

equal to or more than half of the original estimate of time (Svenson & Eriksson, 2017). This is

because it is not only the manual labor that carries out the whole process, the machinery is quite

likely to be involved which will take its fixed time to carry out a task no matter how many times

the workforce is increased (Svenson & Eriksson, 2017). Moreover, if the material does not

reach a desired location on time, or the company gets short of the material it is quite possible

that the project will encounter a delay (Svenson & Eriksson, 2017). Therefore, expecting ideal

assumptions to be applicable in real world scenarios becomes a biasin technical analysis (De

Langhe & Puntoni, 2016). Analysts should incorporate all the possible variants before making

an assumption or should at least make statements while leaving certain room for the possible

additions and subtractions (De Langhe & Puntoni, 2016).


Parkinson's Law of Triviality. The more one knows about the detail of a product or

service, he will speak his experience out to judge it and comment on it (Parkinson & Osborn,

1957). The experience and knowhow makes people overconfident and they fully avail it too

point out every little fault while referring to their experience and knowledge about that specific

entity (Parkinson & Osborn, 1957). On the other hand, people stay silent upon observation of a

new phenomenon or product (Parkinson & Osborn, 1957). The less they know, the less they will

find it feasible to comment on the quality of the entity (Parkinson & Osborn, 1957).

Weber-Fechner law. The Weber Fechner law implies that the difference noticed in a

comparison is directly proportional to the noticeable features of the standard entity (Ditz &

Nieder, 2016). For example if a weight lifter is asked to pick a standard weight of 50kg and is

then asked to pick a different one whose weight is not known, he is more likely to find out the

difference in weights if the difference is relatively identifiable to the weights of the two entities

(Kwak, Ko, & Nam, 2017). Like the detectable change in case of 50 kg and 52kg is 2kg but that

two kg becomes negligible if the weight is raised to 500kg and 502kg (Kwak et al., 2017).

Therefore the observable details have the direct impact upon the detectable difference (Kwak et

al., 2017). Like a space of two centimeter between two insects is much more detectable as

compared to the same difference between two elephants (Kwak et al., 2017).

This effect influences the analysis of the technical analysts (Rose et al., 1970). If he tests

two pastries he can tell which one is lighter in weight but if the same difference exists between

two cakes it can become negligible for him. Therefore in his analysis he can consider both

products to have similar properties but one cheaper than the other ending up criticizing the

higher price while failing to find the reason behind it (Rose et al., 1970). This becomes a source

of bias while carrying out a technical analysis (Rose et al., 1970). In order to avoid it is better to

upscale the smaller entities or to downscale the larger entities so that all their traits could be

analyzed through a fixed and justified standard. In this way everything could be viewed in detail

and none of the properties will remain unnoticed in any scenario (Rose et al., 1970).

Zero-risk bias. It has been observed that people readily identify the changes that

apparently show more improvement as compared to those which seem to be less in magnitude

(Schneider et al., 2017). Suppose on one end a single flaw has been identified for a company to

get on top and three drawbacks are identified for a different company. Now the first company

succeeds in removing their only flaw while the latter one removes two of theirs, still the first

company will be prioritized in the observation of progress and improvement regardless of the

fact that the second company actually showed a greater extent of improvement. This is because

the former company showed a zero risk after their efforts while there is certain share of risk still

left for the latter one (Schneider et al., 2017). This is called zero risk bias and it is quite

frequently observed in technical analysis.

The analysts ignore the relevant extent of the problem before comparing two entities

(Friedman, 2017). A sound comparison requires a uniform and standardized unit of measurement

(Friedman, 2017). If both the entities are not on the same page their comparison can never be

efficient and useful in the future (Friedman, 2017). The concept of zero-risk impresses the

analysts to such an extent that they overlook the justified standardization they should be

following while carrying out the comparative analysis (Friedman, 2017). This upsets the whole

smooth process of a free and fair analysis because the facts presented under the influence of zero

risk can neither be reliable nor rational (Friedman, 2017). The technical analysts must develop

technical skills and ethical principles in their personality in order to resist such biases much more

strongly without shaking at any point. An honest approach to the process of analysis can help

great deal in this respect (Friedman, 2017).

Zero-sum heuristic. Zero-sum heuristic implies the assumption that if losses and gains

occur at equal frequency, it will ultimately sum up into a zero effect (Neilla, Stier-Moses, &

Sigman, 2015). This is usually a gaming logic but it is quite commonly used in the corporate

world (Newman, Gorlin, & Dhar, 2014). However while using this idea it is overlooked that

magnitude is as much significant as the frequency of gains and losses (Newman et al., 2014).

The accurate way is to take care of the all relevant variables while analyzing the ratios of

profit and loss (Fischer & Gallmeyes, 2016). Moreover, it must not be forgotten that these

figures and inferences should be based upon practical calculations rather than guesses and

assumptions (Fischer & Gallmeyes, 2016). Not all the social and philosophical concepts can be

applied to the analysis (Fischer & Gallmeyes, 2016). The technical analysis is supposed to be

based upon figurative evidences and practical witnesses rather than assumed choices (Fischer &

Gallmeyes, 2016). The entities under analysis must be presented in a clear way for the required

comparison so that the reader or audience does not have to rely upon the opinion of the

analyst’s personal view to figure out the trend observed and to recognize the significant

differences (Fischer & Gallmeyes, 2016). If the analyst is statistically sound he will definitely

go for the figures of profit and loss in order to estimate the overall situation in terms of figures

which is the perfect way to go. In this way a clear and authentic evidence will be provided along

with the stance and statement delivered by him (Fischer & Gallmeyes, 2016). Differentiating

business matters from personal beliefs and mythical ideologies could be the best way to keep

the analysis safe from any sort of bias and titled response.

Social Bias

There are certain factors that lead to social biases. The purpose of this section is to further

expand upon these factors. . Generally speaking, social biases by technical analysts results in

the failure to treat all the members of the society on equal grounds (Tinkler et al., 2015). Social

bias can result from the basis of gender, age, class, community to which one belongs, and social

stereotypes (Tinkler et al., 2015). The analyst might end up evaluating a certain process to be

less adequate than it actually is, just because it is carried out by someone who he or she believes

is ignorant or lazy (Eckles, arrer, & Ugander, 2017). This can lead to the formation of false

assumptions just because the reality was never practically investigated and the right questions

were never posed by the analyst (Coleman, 2014). Moreover, this also leads to a biased

comparison and analysis of similar situations due to the development of a certain liking for one

side and has a grudge for the other (Coleman, 2014). These biases lead to disintegration, the

promotion of disappointment, and lack of trust among the people who differ on the basis of

social classification (Krishnan et al., 2014). Therefore the level of coordination and the clarity

of communiqué are also affected through social biases (Krishnan et al., 2014).

Defensive attribution hypothesis. It is a commonly observed trait observed all around

the world that the one who commits and mistake has to suffer the blame and criticism directly

proportional to the damage the mistake has caused (van der Bruggen & Grubb, 2014). This is

known as defense attribution effect. Moreover, if the one suffering the damage is somehow

relevant to the critics or the situation is somehow relatable, the magnitude of criticism rises to

new higher levels (van der Bruggen & Grubb, 2014). It is considered a source of bias because it

is not the actual situation or logical scenario that is convincing the witness to think certain way

or to indicate those responsible, but the personal relevance and experience which is driving his

perceptions and statements (van der Bruggen & Grubb, 2014). This is equally harmful for a

technical analyst.

Once the professionals adapt to such biased approaches a certain situation can be

portrayed in several different impressions (Debowska, Boduszek, Willmott, 2017). If one finds

lesser extent of relevance to a business loss he may show a little mercy to the one who

committed the mistake but another analyst finds it to be a repetition of his own experiences he

will hold the concerned person responsible and would keep on blaming him for the damage

pressing upon the assumption that it was not an unintentional mistake (Debowska et al., 2017).

Similarly if an analyst has been once at the position of the one who committed the mistake, he is

more likely to show the event as a result of an innocent mistake and would try much harder to

justify the stance of the one being blamed (Debowska et al., 2017). Actually the requirement

was to analyze the whole scenario with no strings attached. The scenario should be described

from everybody’s perspective and authentic facts should be presented to come to a uniform

conclusion about the whole mishap (Debowska et al., 2017). It is the requirement of a technical

analysis to have a uniform inference no matter who the analyst was.

Egocentric bias. People often mold the truth of the past in order to make themselves look

good (Duxbury, 2015). This is what is called egocentric bias or self-serving effect. Like kids

exaggerating an experience of a street fight proving they to be heroes in the narration (Duxbury,

2015). This sort of bias is not confined to kids; it is as commonly found in adults as well

(Duxbury, 2015). The past which is established not to return, is tempered in such a way that the

narrator or any associated person looks good to the listener (Duxbury, 2015).

Egocentric bias is quite commonly observed in technical analysis as well. The account of

past situations and significant trade events and landmarks are either over-exaggerated or are

under estimated so as to achieve the image they wish to portray (Duxbury, 2015). Like if an

analyst wishes to prove that a business setup is, he may heighten the magnitude of its past

achievements so as to make its present look disappointing (Duxbury, 2015). The favorites can

be portrayed as saviors and the abhorred ones as those responsible for the decline. It is just a

trick or words (Duxbury, 2015). The words that give a soft impact can be replaced by strong

alternatives to get the desired impact. This means that the aim of technical analysts deviate from

presentation of truth to manipulation of the audiences and readers (Duxbury, 2015). In the field

of analysis personal likes and dislikes has to be kept aside to achieve free and fair results that

can have a long lasting impact upon future growth and progress of business (Duxbury, 2015).

The technical analysts need to realize their responsibilities. Like news reporters, they are the

business reporters and any modification of the information can have direct impact upon the

targeted market (Duxbury, 2015).

Extrinsic incentives bias. In opposition to fundamental attribution bias that is discussed

later on, extrinsic incentive bias implies that people are destined to differ in their opinions about

themselves and others while in the same situation. They would judge others’ positive attributes

to be a result of external factors while they would present their positive attitude to be a subject

of their personal traits (Lepper & Greene, 2015). This is a way of developing an edge by

presenting oneself as a strong personality while referring to others to be unstable enough to be

driven by external influences (Lepper & Greene, 2015). This is even commonly observed in the

corporate world as well (Lepper & Greene, 2015).

The analysts are quite likely to get biased if their analysis and following decisions

become infected by extrinsic incentive bias (Cerasoli, Nickin, Ford, 2014). Like if a technical

analysis claims to present the data accurately he would refer it to be the demand of his honest

and civilized traits while he could make someone else’s earlier analysis, doubtful by claiming it

to be driven by extrinsic incentives likes free services from the focused company (Cerasoli et

al., 2014). Such bias not only damages the reputation of a target analyst or a company but also

make the work of the biased analyst doubtful (Cerasoli et al., 2014). The followers will get

distributed into parties i.e. one supporting the biased analyst while other supporting the targeted

entity (Cerasoli et al., 2014). Therefore it is the utmost responsibility of the analyst not to let his

analysis become a source of disintegration or social disparity. The more he focuses upon the

quality effort and honest analysis the better will be the results not only for the economic world

but also for the society as a whole (Cerasoli et al., 2014).

Former effect/Barnum effect).The Barnum impact, likewise called the Forer impact, is

the perception that people will give high exactness appraisals to depictions of their identity that

probably are custom fitted particularly for them yet are, actually, obscure and sufficiently general

to apply to an extensive variety of individuals (Rosen, 2015). Forer's (1949) own clarification for

the Barnum impact was regarding human guilelessness. Individuals have a tendency to

acknowledge claims about themselves in extent to their craving that the cases be genuine as

opposed to in extent to the exact exactness of the cases as measured by some non-subjective

standard (Rosen, 2015). This affirms another rule in identity evaluation, the Polyanna guideline,

which recommends that there is a general inclination to utilize or acknowledge positive words or

input more much of the time than negative expressions of criticism (Rosen, 2015). To stay away

from the Barnum impact, and acknowledge them without bias and really, there are a few

strategies that can be taken after (Rosen, 2015).

Firstly, one must figure out how to face to himself. As per brain research hypothesis,

individuals have "deformities" that they attempt to hide (Rosen, 2015). Along these lines, to

know ourselves, one should first face to who they are (Rosen, 2015). Also, one must have a

capacity to gather information gathering and judgment (Rosen, 2015). Few individuals are

conceived with insightful and judicious judgment (Rosen, 2015). Sound judgment is an

accumulation of information on the premise of basic leadership capacity, and the information

ought to be a supporting part of the judgment (Rosen, 2015). The individuals, who are not in the

same class as us, or taking our own cons to look at others' professionals, will be one-sided

(Rosen, 2015).

Fundamental attribution error. It is commonly observed that people usually focus

upon blame rather than finding out the real reason behind an encountered situation (Walker,

Smith, & Vul, 2015). For example when a person behaves rudely, one would assume it to be his

or her personality trait, thus judging him or her to be an ignorant person (Walker et al., 2015).

Actually looking at things more positively requires a more detailed effort and observation

(Walker et al., 2015).

Similarly if an electronic device is being tested for its performance analysis, its reduced

efficiency will be readily attributed as its drawback, flaw or internal fault rather than analyzing

the surroundings and recognizing the factors that are actually discouraging it to perform with

the expected efficiency (Walker et al., 2015). There is a possibility that the guidelines for

operation of the machinery were not properly followed by the analysts himself but that would

be the last thing to be checked even after putting the whole blame upon the faulty device

(Walker et al., 2015). This is why the technical analyst can be considerably biased if the

analysts’ attitude is monitored by the fundamental attribution error (Walker et al., 2015). A

skilled and responsible analyst will be highly careful while making any controversial

statements. He will think positively and will try to identify the ultimate cause whenever a

problem in encountered in the operation of a device.

Group attribution error. Judging an entity just on the basis of the group to which it

belongs, is called group- attribution theory and bias (Robinson, 2017). If it is assumed that a

certain group attribute is the belief and practice of each and every member of the group, this

attributes the traits of the group as a whole to the individual (Robinson, 2017). This becomes

over judgmental approach. These are based less on observations and more upon assumptions

(Robinson, 2017). Like if a company is well known for its substandard but cheap products, each

of its products is believed to be carrying the same trait no matter how much improvement is

brought in it with the passage of time (Robinson, 2017). Therefore a high class company will

avoid buying any electronic device from that supply company no matter what claims it makes

and how true the claims actually are (Robinson, 2017).

Therefore it is clear that if the company is attributed for a certain property, its products

will struggle to get the significance they actually deserve (Graham, 2014). On the other hand the

low standard companies will keep on purchasing products from it just because they care nothing

of quality but of rates which are assumed to be lower no matter how expensive a certain product

actually gets, it is assumed to be relatively cheaper (Graham, 2014). Therefore, these properties

make up to give a portrayal of a certain member product in a review technical analysis (Graham,

2014). These sort of analysis are certainly biased because they focus more upon the overall

group traits rather than the properties and capabilities of each product (Graham, 2014). A

technical analyst requires working in detail in order to identify every relevant point no matter

how minute or prominent it is (Graham, 2014).


Halo Effect. As elaborated in the phrase “first impression is the last impression”, man

actually judges everything around it from the first impression it gets (Rosenzweig, 2014).

People form opinions readily and that opinion remains in their head no matter how much that

particular entity changes (Rosenzweig, 2014). If in the first experience they find something

annoying they will always avoid it remembering it to be annoying without giving a second

chance (Rosenzweig, 2014). Similarly if something feels pleasant to them it will remain

pleasant in their heads no matter how much it actually deteriorates (Rosenzweig, 2014). It is

applicable to products and services as well (Rosenzweig, 2014). If the analyst finds a

restaurant’s foods unhygienic, he will keep on referring to that past experience time and again

keeping the outlet away from his good books forever (Rosenzweig, 2014).

Similarly if he finds a certain company head to be working actively and passionately, he

will dedicate the success and progress of that company to him altogether and every time the

company takes a leap forward he would assume it to be the result of the devoted efforts of the

head (Rosenzweig, 2014). If the same company sees a downfall, the analyst will be reluctant to

blame the head so he would dig deep to find someone else to blame (Rosenzweig, 2014). This is

a clear example of bias in the analysis (Rosenzweig, 2014). In order to avoid it in technical

analysis it is recommended that the technical entities must remain vigilant and flexible enough

to identify the flaws or improvements readily in order to modify the analysis accordingly and to

highlight the achievements made as a result of those changes (Rosenzweig, 2014). They must

not allow one experience to overshadow the rest of the instances making their analysis highly

biased and questionable (Rosenzweig, 2014).

Illusion of external agency. There are times when people formulate their own beliefs

and then attribute them to external factors and agencies (Gilbert et al., 2000). This is done

intentionally in some cases and unintentionally in others (Gilbert et al., 2000). These

justifications are made to conceal their direct personal liking or disliking and to make their

rational enough to be believed (Gilbert et al., 2000). These personal choices are attributed to

factors like benevolence, extent of knowledge and other external influences (Gilbert et al., 2000).

Actually those decisions and choices are a result of personal perception and cognitive

capabilities but the person refuses to own it and make it a subject to external agencies (Gilbert et

al., 2000).

Illusion of transparency. Sometimes people get over assuming and make general

wonderings, their beliefs (Schaerer et al, 2015). Like when a person gets on the stage he feels

over-conscious and frightened because he feels that people are staring at him and judging him

while making the right inferences that are all discouraging (Schaerer et al, 2015)? This is one

form of illusion. Assuming the other person to be an open book is also a form of illusion

(Schaerer et al, 2015). Both of these illusions form the illusion of transparency (Schaerer et al,

2015). The former makes a person lose the confidence while the latter makes his overly

confident, not to mention both are quite harmful (Schaerer et al, 2015). These illusions inhibit a

person to make open and independent observations and choices.

In-group bias. It is human nature to form or assume the formation of groups wherever

they finds traits in others that make them similar to them in one or the other way (Gartner &

Davidic, 2014). Once the groups are formed whether practically or in their heads, they will be

treated especially as compared to the rest of the people (Gartner & Davidic, 2014). Certain

favors and edges will be provided to the members who are considered the part of that particular

group that can be considered the perk of being a group member (Gartner & Davidic, 2014).

Similar group formations are also the part of business world (Gartner & Davidic, 2014).

The company headed by a Christian can get an edge in the analytical process conducted

by a Christian analyst (Balliet et al., 2016). Similarly, the analysis by an American is more

likely to sound supportive to an American oriented company (Balliet et al., 2016). These

tendencies lead to unjust reporting and filtered presentation of facts (Balliet et al., 2016). A

favor to a group member to could be concealing the flaws and faults made in his company and

over estimation of the future progress expected for that particular company (Balliet et al., 2016).

While the same standards are not used the ups and downs of other such companies just because

they don’t fall in the in-group category (Balliet et al., 2016). Deviation from standard scale of

bias can result in disintegration and damage in the way of economic progress. Claims of a

reliable study and analysis might win the support of relevant domain for the technical personnel

but when the policies are applied in the long run, they don’t produce the desired results proving

the analysis to be highly biased while identifying the aspects where favoritism was welcomed

(Balliet et al., 2016). For making the analysis free from tempering it is recommended to

categorize the study in accordance with the merit standards rather than social and cultural biases

(Balliet et al., 2016). If the analysts consider them to be nameless entities meant for observation,

there won’t even be a question of this type of bias (Balliet et al., 2016).

Moral luck. The process of blame game is highly common in our society (Hanna, 2014).

Whenever a person faces an adversity people look for ways to blame his actions to be the cause

of the rather awkward situation (Hanna, 2014). There could be many different reasons that

could be a justified explanation of the truth but the biased attitude of the society due to their

blind belief in moral luck has turned people to be judgmental about others without fully

understanding their situation and comprehending it rationally (Hanna, 2014). Like if a bakery

item fails to impress the customers, it is readily perceived that the baking quality has been

compromised by the company for the sake of saving money so in return their signature is losing

fame and declining financially (Hanna, 2014).

It is quite possible that a deeper look into the matter could reveal different findings

(Hausman, McPherson, & Satz, 2016). Like a certain mishap in the machinery could have

caused the quality doubt even when it was imported from the best possible manufacturers,

causing a complete lot to be slightly different in taste due to lesser amount of sugar poured by

the machinery (Hausman et al., 2016). Blaming every exceptional case to moral luck is not a

perfect way of a neutral and unbiased technical analysis (Hausman et al., 2016). Moreover, it

won’t even result in any solid findings identifying the exact fault to be corrected or overcome

right at the spot (Hausman et al., 2016). The analysts will fail to provide logical justification of

their stance so their analysis will be considered emotional more than technically logical

(Hausman et al., 2016). The myths and beliefs of moral luck move by the side of almost

everybody’s life but when it comes to technical reasoning, with evidences, one can never use

them as an admissible explanation because there are no technical ways to undo or avoid it in the

future (Hausman et al., 2016).

Naïve cynicism. When a person fails to listen to the opposing views and thinks of

himself to be the only perfect one he looks down upon others and believes them to be influenced

and biased ones just because they negate or oppose him (Kruger & Gilovich, 1999). This is

actually a reflection of the biased attitude that the person himself has (Kruger & Gilovich, 1999).

Rather than listening to others and making an attempt to understand and analyze their stance he

tags them with the title of biased and refuses to consider their point of argument (Kruger &

Gilovich, 1999). He keeps on insisting upon his standards to be just and fair while judging others

to be highly under influence. This way of dealing with the oppositions and argumentation can

lead one to making highly biased and insincere decisions and presentations (Kruger & Gilovich,


This is quite likely to influence the process of analytical reasoning carried out by the

technical analysts. When going through the records and observations penned down by other

analysts in order to mark a comparison of past to the present, if an analyst shows the signs of

naïve cynicism he would view those statements and interpretations as biased ones thus hesitating

to rely upon that information for his comparative analysis for economic findings (Kruger &

Gilovich, 1999). While those are the only reliable resources for the analysts to derive the past

facts and figures, their hesitation for its incorporation in their documentation can cause an

information gap and lapse in the analysis and findings (Benforado & Hanson, 2007). The

technical analyst must have the capability to make the perfect judgments about certain data or

findings (Benforado & Hanson, 2007). He must rely upon logics and reasoning for approving or

disapproving of a resource. Technical analysis is all about deriving fruitful results from

comparison of past and present economic conditions and naïve cynicism has the potential to

destroy it altogether rendering nothing in hand (Benforado & Hanson, 2007).

Naïve realism. Naïve realism is the broader aspect of naïve cynicism as discussed above

(Genone, 2016). Naïve realism implies that a person thinks that those with different point of

view than his, either don’t have enough knowledge or their perceptive ways are irrational

(Genone, 2016). This makes a person less rational himself (Genone, 2016). He shows no

flexibility to a different opinion or any way of thinking that is unusual to him. In this way he

becomes a follower of conventional ways and any new practice and idea sounds absurd and

biased to him (Genone, 2016).


Therefore, if such people conduct technical analysis they end up giving unreliable and

useless results. being overconfident about one’s own stance makes them so bold that they hardly

review their statements and interpretations therefore they are often found to be full of mistakes

and absurd inferences which sound opposing trends of economic conditions. The analysts end up

missing important observations made in the past just because they doubt the source to be

independent and unbiased. Thus their analysis becomes hollow and insignificant carrying hardly

any interesting and important facts. They may mold the facts just to make them look agreeable to

themselves, thus deviating from the truth and honest reporting which is the ultimate ethical

principle for analysts. But the truth always reveals itself rendering loss of trust on the biased

analysts and raising questions to their previous works as well. Moreover, the companies will be

forced to review their strategies in order to diminish the effect of conclusions made by those

analysts. In order to keep the analysis authentic and reliable and to save their reputation the

analysts need to make keen and clear observations.

Out-group homogeneity bias. People often tend to show repulsion and opposition to

anybody who seems largely different from them (Gaertner & Dovidio, 2014). Their flaws seem

intensified and heightened to them and their qualities minimize in front of their eyes (Gaertner &

Dovidio, 2014). So the members of a particular group find the outsiders absurd and wired. If they

identify one of their negative aspects they would assume that all of the outsiders have that

negative trait regardless of their individuality (Gaertner & Dovidio, 2014). They assume all the

outsiders to be the same in a negative way. On the other hand they perceive their group mates to

be flexible and unique (Gaertner & Dovidio, 2014).

Everyone inside their group is believed to have an adaptive attitude and open way to

approach things while outsiders are viewed as conservatives (Gaertner & Dovidio, 2014). This

is a clear show of bias in the attitude of in-group members. Now if a group member is technical

analyst his analysis is surely affected by the traits mentioned above (Gaertner & Dovidio, 2014).

If his perceptions match the aim of a particular networking company he may exclude the rest of

them from his group. And those forming the out-group are all assumed by the analyst to be

malfunctioning and poor in service providing (Gaertner & Dovidio, 2014). Such concentration

of focus on one end can obviously produce tempered results showing one unfairly better than

the other companies. Such clear form of bias becomes readily apparent to the readers and

listeners (Gaertner & Dovidio, 2014). The analysts must devise ways to resist the influence of

such biases. In order to avoid the polarity it is better to form a universal group which

incorporates every relevant entity so that no one becomes a victim to the biased attitude of the

technical analysts (Gaertner & Dovidio, 2014).

Self-serving bias. People often mold the truth of the past in order to make themselves

look good. This is known as the self-serving effect (Klein & Kantor, 2017). Like kids

exaggerating an experience of a street fight proving themselves to be heroes in the narration

(Klein & Kantor, 2017). This sort of bias is not confined to kids; it is as commonly found in

adults as well (Klein & Kantor, 2017). The past which is established not to return, is tempered in

such a way that the narrator or any associated person looks good to the listener. Egocentric bias

is quite commonly observed in technical analysis as well. The account of past situations and

significant trade events and landmarks are either over-exaggerated or are under estimated so as to

achieve the image they wish to portray (Klein & Kantor, 2017).

Like if an analyst wishes to prove that a business setup is, he may heighten the magnitude

of its past achievements so as to make its present look disappointing (Klein & Kantor, 2017).

The favorites can be portrayed as saviors and the abhorred ones as those responsible for the

decline (Klein & Kantor, 2017). The words that give a soft impact can be replaced by strong

alternatives to get the desired impact (Klein & Kantor, 2017). This means that the aim of

technical analysts deviate from presentation of truth to manipulation of the audiences and readers

(Klein & Kantor, 2017). In the field of technical analysis, personal likes and dislikes has to be

kept aside to achieve free and fair results that can have a long lasting impact upon future growth

and progress of business (Klein & Kantor, 2017). The technical analysts need to realize their

responsibilities. Like news reporters, they are the business reporters and any modification of the

information can have direct impact upon the targeted market (Klein & Kantor, 2017).

Shared information bias. It has been identified that the information that is known to a

broader range of people is shared and discussed more often than the one which is new and

requires being explained (Chen & Sun, 2016). People look for ease and shortcuts so they go for

something that requires less time and effort to be explained (Chen & Sun, 2016). Moreover, they

doubt that everyone will easily get their point if they try elaborating something new and unique

(Chen & Sun, 2016). They find it amusing to discuss things that others are aware of than to

surprise or haunt others with new ideas (Chen & Sun, 2016). However, a well-informed decision

requires the knowledge of complete scenario i.e. shared as well as unshared information

otherwise the decision becomes one sided and biased which produces negative results and

possibly harmful impacts (Chen & Sun, 2016). It is observed in the corporate world as well. The

already known facts and figures are discussed in detail while the less known information is kept

away from the discussion (Chen & Sun, 2016).

This has a direct impact upon the process of decision making as the whole analytical

scenario gets upset and the results and findings suffer from bias (Chen & Sun, 2016). Therefore

this problem needs to be addressed readily. Arrangement of longer duration for meeting,

friendly atmosphere and open rules of discussion can encourage sharing of lesser known

information (Chen & Sun, 2016). An appreciation for new addition of information, supportive

attitude and keen listening can also convince the analysts to take the risk of revealing the

unshared information. Avoiding the repetition of topics and moving forward after a limited

pause can also help in this regard (Chen & Sun, 2016). Moreover, creative presentations and

helping tools can make it easier for the technical analyst to go for description of information

that is new to the listeners (Chen & Sun, 2016).

System justification. It has been observed that most of the society is comprised of the

individuals who blindly support the norms of the society and practice them unconditionally

(Jost & Andrews, 2011). They not only never question the unjust practices and ideas but also try

to justify them through lame logics (Jost & Andrews, 2011). This is either because they are

careless, ignorant or are unaware of the long term impacts of those unjust practices or because

they find some personal benefit in doing so (Jost & Andrews, 2011). This is often done to

achieve some personal, political, social or economic motives through the wrongful support (Jost

& Andrews, 2011). It is quite possible that the technical analysts support the price hike and

make efforts to justify it rather than criticizing it and findings ways to end it (Jost & Andrews,

2011). He may claim that the current average income and average price has risen in parallel so

technically it is not a price hike but this can only be proven wrong through in-depth economic

analysis for which anybody hardly tries in order to cross check the claim made by the analysts

(Jost & Andrews, 2011). Unfortunately in most cases the claims made by the analysts are

blindly accepted by the business tycoons and the general public (Jost & Andrews, 2011). This

becomes a problem as the wrongful statements and analysis is further availed without

verification (Jost & Andrews, 2011). In order to get rid of such tilted results the analysts needs

to be free of political, social and economic matters (Jost & Andrews, 2011). He needs to be

highly focused and responsible. He must think rationally and act wisely. His actions and words

must not support one and neglect other just because he wants it to be that way. He must be a

supporter of true facts no matter what influence they cause (Jost & Andrews, 2011).

Ultimate attribution error. It has been commonly seen that the believers of one practice

are found criticizing an unusual behaviors by the opponent group and claim it to be a trait of the

opponent group while if the same mistake is committed by their group member they will try to

justify it or call it an exception (Khandelwal et al., 2014). Similarly if the opponent member does

a good thing, it is assumed to be exception while the same done by their own group member will

be considered a principle of their group (Khandelwal et al., 2014). This is a clear social bias

apparent in business matters.

If the analyst is a white he may point out that a certain black model was promoting some

product way too expensive and would blame the whole company for it but when a similar item

is found to even more expensive at his favorite outlet owned by a white executive, he may find

several reasons for proving the prize to be reasonable and justified (Byrd & Ray, 2015).

Similarly if a certain product of a company exhibit a manufacturing flaw, the analyst is quite

likely to damage the company’s reputation after it provided the company falls in the category of

his opponents (Byrd & Ray, 2015). On the other hand if a similar fault in his own category can

be referred as a one-time thing along with an assurance of quick fixing of the problem within no

time. This is an openly biased attitude which can never end up in positive and productive

analysis by the technical analysts (Byrd & Ray, 2015). To avoid it the analysts must avoid

grouping and personal attachment to companies under observation for a highly professional

analysis (Byrd & Ray, 2015).


Memory Errors and Bias

Another set of bias are memory errors and biases. This is because observations and

records hold a high significance in analysis (Chowdhury et al., 2014). The analysis conducted

by professionals in the financial field is expected to be based upon relevant observations and

associated data (Pouget, Sauvagnat, & Villeneuve, 2017). Data and information can also be

used as supporting evidence while making a point, but is predominantly used to clarify the

ambiguities and to provide illustration of the aspect the analysts refer to (Pouget et al., 2017).

Therefore, this data needs to be highly accurate as well as detailed. For this purpose, a sound

and effective memory is the core requirement for successful and efficient analysis (Varneskov

& Perron, 2017). As data is usually available in large sets, and the required observations are so

intense, it can become difficult for analysts to hold all data internally, leading to memory errors

and biases (s. Memory biases are unintentional and they are almost impossible to control

because of limited human memory capacity (Filbeck et al., 2017). The best way to diminish this

form of bias is to find an alternative for keeping a record of the data and observations, so that

the understood memory bias does not become a source of faulty demonstrations and inadequate

findings (Das & Teng, 1999).

Bizarreness effect. It is medically proven that a memory that is unusual in one or the

other way lasts longer than others (McDaniel et al., 1995). Like exceptionally funny events,

exceptionally strange events and absurd events make up a more reliable memory (McDaniel et

al., 1995). The bizarre happenings, information, or experience remains in our mind for a longer

time and it becomes the first thing to come to mind when one looks back at the past of a

relevant matter (McDaniel et al., 1995).


Therefore, when technical analysts try to look back to their business encounters and

observations made they are more likely to be remembering the stranger observations made in

the particular context. It is the new or unique things that the eyes catch and that strike the mind.

The bizarre ideas, practices and events amaze or shock the mind therefore that response decides

how long that memory has to last in the head. Recalling that information that stands out is far

easier than the common plain data. This is why it becomes a source of bias. The analyst may

end up highlighting the bizarre observation while pushing back the important information and

events that were actually meant to be made a part of the complete analysis. In this way the

analysis may be revolving around a handful of observations which deviate from the rest of

them. In order to overcome this problem the technical analysts have to make professional

observations rather than involving their sentiments and emotions in the process because this is

what gives rise to biased responses and unbalanced account of technical analysis.

Choice-supportive bias. Choice-supportive bias is the tendency of the individual to view

his decision in the most advantageous light (Henkel & Mather, 2007). Basically, all the

individuals are hardwired to reinforce their decisions subconsciously (Henkel & Mather, 2007).

The positive characteristics of the decision are ascribed retroactively due to which the

certainties of an individual are strengthened after decision point (Henkel & Mather, 2007). This

is the reason an individual become more resolute in his position after making initial choice

(Henkel & Mather, 2007). The aspects of the behavior of the technical analysts which makes the

people susceptible to unbelievably real investment opportunities can be very much dangerous

while making decisions or assessment of the performance regarding staying diversified or

invested (Henkel & Mather, 2007).


By misrepresenting reminiscences of selected action courses contrasted with the rejected

action courses, the investment opportunities that seem more attractive are selected by technical

analysts (Friedman, 2017). As the good investment choices are more frequently remembered by

the technical analysts than the bad or neutral investment choices, this can lead to wrong

reminiscence of the final outcome (Friedman, 2017). It is necessary that the technical analysts

must learn from their bad investment experiences rather than forgetting them (Friedman, 2017).

Choice-supportive bias can be avoided by trusting on independent reviews (Friedman, 2017).

Instead of showing loyalty to a specific market or technical analysts and focusing on the positive

characteristics of that particular market, technical analysts must trust on the independent reviews

(Friedman, 2017). It is important that technical analysts must not make decisions based on the

unsolicited sources. The buying and investing habits must be reviewed regularly by the technical

analysts and it must be made sure that the investments made regularly are still on the top

(Friedman, 2017).

Conservatism or Regressive bias. A specific perspective in which high probabilities and

high values are overvalued while low probabilities and low values are undervalued is termed as

conservatism or regressive bias (Lara, Osma, & Penalva, 2016). At the point when confronted

with money related choices, the decisions of the technical analyst regularly wander from the

"ideal" decisions recommended by customary finance (Lara et al., 2016). The imperfect

decisions regarding investment are regularly established in behavioral inclinations (Lara et al.,

2016). Review from our past issue that psychological blunders are inclinations that stem from

fundamental factual, information preparing, or memory mistakes (Lara et al., 2016).

Normally, technical analysts who display conservatism will hold securities in their

portfolios for a more extended period than an objective leader would (Marglin, 2014) The

objective technical analysts would suitably handle every single incremental information around

a security and offer the security when the danger/return profile gets to be unfavorable, while the

technical analyst with conservatism inclination will tend to get them "wedded" to securities

(Marglin, 2014). They will underreact to new information and will be moderate to consider a

conflicting perspective (Marglin, 2014). Much more dreadful, technical analysts with

conservatism inclination may utilize mistaken information as opposed to managing the mental

anxiety connected with changing their perspectives (Marglin, 2014). Despise to surrender their

unique proposal; they will hold ventures with poor anticipated that profits would the impairment

of their speculation account equalization (Marglin, 2014). To rectify for conservatism, technical

analysts ought to make certain to appropriately break down every single significant data. They

ought to equitably assess the ramifications of the new information and join it suitably into a

recently developed perspective (Marglin, 2014). Technical analysts ought to be attentive not to

place undue weight on their unique perspectives. They ought to dependably be considering

"how can this new information influence the venture standpoint?" They ought to abstain from

letting the greatness of the psychological cost required to handle new information direct the

amount of consideration is paid to it (Marglin, 2014).

Consistency bias. Consistency bias is a cognitive bias which refers to remembering the

past behavior and attitude of an individual incorrectly as similar to present behavior and attitude

(White, 2015). The conduct of a technical analyst gets influenced because of this inclination. For

example, if a technical analyst has seen a positive news article with respect to an organization

before, then it may deliver a good impression of that specific organization in the perspective of

that technical analyst. In future the view of the technical analyst in regards to that specific

organization may change yet he will see it as he has the same observation with respect to that

organization previously. The decisions and the conduct of the technical analyst in regards to the

investment may change without the technical analyst investigating that it has really changed.

This is unsafe and results in inclination as the technical analysts can't watch any adjustments in

their exchanging practices. One reason that the consistency bias is such a typical trap is, to the

point that when confronted with strategic issues, carrying on as per the consistency bias

frequently pays off (White, 2015).

That is, strategic issues are much of the time figured out by including individuals,

growing the timetable or funding (White, 2015). Though, when the issues are vital in nature,

they require the consideration and definitive of senior initiative and regularly an adjustment in

course (White, 2015). . A supportive instrument is to utilize technique as an approach to discuss

these glaring issues at hand (White, 2015). In particular, an individual can utilize an

examination of long haul aggressive methodology to tee-up provocative survey and discussions

on the off chance that the long view or only legitimize earlier duties are really supported by

them (White, 2015). Another procedure is to outline the discourse around client needs and

acquiring necessities. As these practices commonly come from key intellectual inclinations,

they are not minor to perceive, but rather with cognizant exertion one can stay away from some

anticipated traps (White, 2015).

Context effect. A context effect is a type of cognitive bias that depicts the impact of

ecological elements on perception of an individual regarding a stimulus (Do, 2011). The effect

of this bias is thought to be a piece of top-down configuration (Do, 2011). The idea is upheld by

the hypothetical way to deal with observation known as valuable recognition. At the point when

this bias takes place, people are utilizing the perceived natural signs while inspecting the stimuli

with a specific end goal to dissect it (Do, 2011). As such, people regularly settle on relative

choices that are impacted by the past exposures or environment (Do, 2011). These choices

might be significantly impacted by these outer factors and adjust the way people see an article.

In spite of the fact that news is distinctive consistently, the responses of the technical analysts to

it are most certainly not (Do, 2011).

These responses are shown in a stock's graph, making designs. These examples mirror the

conduct of, the responses of the technical analysts to organization news, market occasions, and

the monetary and contributing environment (Do, 2011). Technical analysis concentrates more

on translating the psychology of stocks market around a stock more than the actual merits of an

organization as a long haul venture (Do, 2011). This bias might influence the conduct of a

technical analyst, keeping up that the specific stocks business sector will build the allure of

another securities investment that is comparable, yet better than it (Do, 2011). By demonstrating

that a securities investment is better than a comparable one the agreeability and conceivable

obtaining force of the prevalent securities investment increments (Do, 2011). Technical analysts

can keep away from this cognitive bias in the event that they are made intentionally mindful of

the outside boost or past history that may impact their trading decision and trading behavior

(Do, 2011).

Cryptomnesia. People often mold the truth of the past in order to make themselves look

good. This is called egocentric bias or self-serving effect (Cooper, 2015). Like kids

exaggerating an experience of a street fight proving themselves to be heroes in the narration

(Cooper, 2015). This sort of bias is not confined to kids; it is as commonly found in adults as

well (Cooper, 2015). The past which is established not to return, is tempered in such a way that

the narrator or any associated person looks good to the listener (Cooper, 2015). Egocentric bias

is quite commonly observed in technical analysis as well (Cooper, 2015). The account of past

situations and significant trade events and landmarks are either over-exaggerated or are under

estimated so as to achieve the image they wish to portray (Cooper, 2015). Like if an analyst

wishes to prove that a business setup is, he may heighten the magnitude of its past achievements

so as to make its present look disappointing (Cooper, 2015).

The favorites can be portrayed as saviors and the abhorred ones as those responsible for

the decline. It is just a trick or words (Taylor, 1965). The words that give a soft impact can be

replaced by strong alternatives to get the desired impact (Taylor, 1965). This means that the aim

of technical analysts deviate from presentation of truth to manipulation of the audiences and

readers. In the field of analysis personal likes and dislikes has to be kept aside to achieve free

and fair results that can have a long lasting impact upon future growth and progress of business.

The technical analysts need to realize their responsibilities. Like news reporters, they are the

business reporters and any modification of the information can have direct impact upon the

targeted market (Taylor, 1965).

Google effect. Digital amnesia or Google effect is the phenomenon which implies that a

people are most likely to forget that information readily, which they know they can find online,

any time (Foray, 2004). People have become too much reliant upon the online information

resources that they have seized using their own cognitive abilities as well as offline sources

(Foray, 2004). Therefore, the human mind has become so much used to the available facilities

that the laziness is even apparent in the memorizing capabilities (Foray, 2004). This is

considered as source of bias in technical analysis by analysts. They end up having lesser

memory of the online information they researched thus they use the information at hand more

often than the information obtained online. It is quite possible that the information online is

more authentic and broader in detail. When the analysis will become less subject to online

sources the results, recommendations and suggestions may prove to be outdated and less

efficient in regard to the fast paced existing business trends. The better way is to look up the

offline resources of the data so that they could be memorized and could be recalled efficiently

for use. Another way could be a total dependence upon online data so that the online source are

necessarily revisited and remembered because there could be no other alternatives for that

(Foray, 2004).

Humor effect. The field of psychology has recognized that funny and humorous

memories last longer in brain than the serious ones (Suzuki & Heath, 2014). Therefore if a

conversation is initiated with a joke, its influence becomes comparatively stronger on human

mind (Suzuki & Heath, 2014). The happy emotions get attached to the memory so the impact

created and information delivered last longer (Suzuki & Heath, 2014). It is equally likely for the

research analysts.

The briefings that deliver information straight to the point without any efficient use of

manipulative strategies for lightening up the moods tend to bore the attendants and fail to put

the required impact (Bitterly, Brooks, & Schweitzer, 2017). This is well-recognized in today’s

world so most of the business presentations, advertisements and marketing strategies

incorporate one or the other fun element in their planning for convincing the viewers and

audiences (Bitterly et al., 2017). When a firm representative conducts a meeting in order to

convince another company to sponsor it, the plain presentation of data may lag behind in

convincing the guests as compared to the wise discussion with high level of professional humor

to convince them in order to make a decision in their favor (Bitterly et al., 2017).

Similarly, the technical analysts fall for the same biased attitude when they experience

situations involving one or the other form of humor (Bitterly et al., 2017). So they end up

writing a positive review about a company which carried out a humorous presentation as

compared to another one which had used more conventional ways of presentation (Bitterly et

al., 2017). This is because they will be remembering the facts and information regarding the

latter type of companies vividly as compared to former ones (Bitterly et al., 2017). In order to

avoid such bias it is necessary to rely upon recorded data and information to avoid falling prey

to manipulative techniques used in oral presentations (Bitterly et al., 2017).

Illusion of truth effect. It is often observed that people believe in statements to which

they are accustomed rather than unusual facts (Silva, 2014). They approve of familiar facts to be

true even if they know nothing of their authenticity (Silva, 2014). Even when the wordings

sound similar to them, they don’t bother digging deep into the logics and objectives of the

claims and blindly approve of them against the one that sounds unusual to them (Silva, 2014).

This becomes a source of bias in interpretation of past data by the technical analysts who strive

to find out the ups and downs over the span of time in a particular business setup (Silva, 2014).

The things which they find generally true are assumed by them to be true for specific situations

and scenarios as well without carrying out any investigation in this regard to approve of it as

truth (Silva, 2014). This is synonymous to myths and stereotypes which aren’t true in most

cases but still they are approved of and are considered responsible for certain points of ups and

downs (Silva, 2014). Unfortunately people following such analysis mostly also exhibit a similar

behavior therefore, the legacy continues in the process of observation and correction around the

business world (Silva, 2014). The corporate world is prone to such tendencies and biases

because it is a matter of psyche and it can occur to anyone working in the team. In order to

avoid such bias it is necessary to develop a non-judgmental attitude (Silva, 2014). The

eagerness to learn things to research and discovery could be a better way to get to the truth of

the scenario. Flexibility and welcoming attitude towards new and unique findings can also help

solve the problem (Silva, 2014).

Illusory correlation. When memories are recalled it is quite possible that they are

associated with a circumstance with a certain practice wrongfully (Hamilton, 2015). Relating a

variable with another while it has nothing to do with in reality, is known as illusionary

correlation (Hamilton, 2015). Sometimes the technical analysts don’t look for records and

evidences and just recall how they remember things taking place (Hamilton, 2015). Illusionary

correlation is most commonly found in such situations. It is again a result of inaccurate recall of

memory (Hamilton, 2015). Moreover, it can also be due the influence of personal perceptions

(Hamilton, 2015).

Like if a person thinks that the executive team of a certain company is incompetent he

can add up an illusionary statement claiming the failure of company’s business to be the result

of poor top management (Hamilton, 2015). These assumptions can be diminished by focusing

upon collection of accurate data and using them in the appropriate way (Hamilton, 2015).

Claims should always be followed by evidences and statistical proofs in order to be approved

and utilized for improving economic strategies. If a mistaken association is highly recognized

and considered for a loss or benefit it can either be avoided or adapted by the business firms

thus it can alter total scenario (Hamilton, 2015). Therefore, correlations that have no practical

and reliable evidences must not be considered. Moreover, the technical analysts should avoid

using the information which they believe to be mere guess or sounds to be self-created

(Hamilton, 2015). As long as the claim is not claimed by multiple resources, it must not be

carried further and shouldn’t be made a part of the written or oral analysis as that is source of

knowledge for others who might consider utilizing that information in future endeavors of their

business setups (Hamilton, 2015).

Levels-of-processing effect. Psychology says that the deeply one analyzes a situation or

phenomenon the longer it stays as the part of memory (Thomson, Smilek, & Besner, 2014). So

the economic processes or practices which attract the technical analysts succeed in getting their

attention and they are thoroughly examined and studied (Thomson et al., 2014). Thus these

practices and process take the bigger room in their memories so later on they are the most

probable one to be used (Thomson et al., 2014). They more creative or unique the strategy is the

more likely it will be to capture the attention thus driving the analysts to refer to them as the key

concepts or ideal strategies. They are left with limited choices if they depend upon their

memory (Thomson et al., 2014). They are one in thousands of phenomenon that actually strike

the mind so hard that the analysts choose to dig further down into the matter (Thomson et al.,

2014). When they set out to analyze they will only have the clearer memory of those chosen

observations thus this will ease their task (Thomson et al., 2014). On one hand it sounds to be

an efficient way to provide the analyst with an easy way to analyze the business venture but on

the other hand, it is thought to be source of bias making the analysis doubtful and unreliable

(Thomson et al., 2014).

List-length effect. It has been identified that memory capabilities extend with the range

of information an individual is supposed to digest (Wilson & Criss, 2017). This is known as list

length effect. When the length of the list is comparatively shorter, the number of items

remembered are also lesser and vice versa (Wilson & Criss, 2017). This has quite an impact

upon the Technical analysis by the technical analysts. If the list of data for one company is

longer while it is shorter for the other one, the analyst is more likely to remember more

information about the former than the latter (Wilson & Criss, 2017). This creates a polarity in

the comparison because the results will be derived from a biased data. The data of one company

will be elaborate enough as compared to the other company (Wilson & Criss, 2017).

Figure 12: The Weight of Company Commentary - this figure shows the consensus of

monthly estimates updates with the total percentage of available estimates. As the dark blue

increases in percentage, it decreases in m

Misinformation effect. It has been observed that if in the past a person is intentionally

misled, he is likely to avail that wrong information in the future to draw conclusions that are

actually wrong (Pickrell et al., 216). Even if the person was aware in the past that what he

witnessed was a mistake, in the future he will have the misinformation in mind and it will

ultimately shape his choices and mark his decisions which will obviously be messed up

(Pickrell et al., 216). Everything a technical analyst sees, stores in the back of his mind and once

that information becomes a history and it is retrieved someday, its rationality or reliability may

not be reviewed (Pickrell et al., 216). Such information when availed results in a completely

route of action. If in the past the analysts got to know the partial sale to be a way of getting back

into the market and gradually getting the market share back, they will definitely refer it to be a

wise solution believing it to be the reason of the improvement observed later on while it being a


When misinformation is made the basis of deriving inferences and building up future

strategies, the results are always strategically devastating (Pickrell et al., 216). It is better to

look into the matters and find historical evidences before making assumptions solely on the

basis of personal memory and experiences (Pickrell et al., 216). In order to devise accurate ways

of analysis it is quite preferable to review landmark news and progress reports in order to find

out the true and authentic knowledge. Misinformation can mislead the whole process (Pickrell

et al., 216). The reports presented by the technical analysts should either be reviewed or should

be monitored to avoid any such source of bias.

Modality effect. A person is likely to remember something more clearly if it is

elaborated with oral presentation as well as visual aid (Grenfell-Essam, Ward, & Tan, 2017).

Oral presentation alone does not have that strong impact on the memory neither can written

material play that role alone (Grenfell et al., 2017). This is known as modality effect (Grenfell et

al., 2017). It is a trait of human psyche while in trade analysis it is a source of biased analysis

carried out by technical analysts. The analysts may not remember what they read or hear but

they would remember the information delivered orally along with written description. Like

when a record is presented to the analyst by a relevant personnel and its written documentation

is provided as evidence, the analyst will be far more convinced. He will be mentally satisfied

therefore his mind will welcome the information to be fed as prioritized memory (Grenfell et

al., 2017).

So the obtained historical records may not have the expected impact upon the analysis of

the experts due to the absence of oral demonstration (Grenfell et al., 2017). Similarly, oral

demonstration of the process of business progress can be forsaken within no time if there is no

written record provided. Not every organization or every department arranges an oral

elaboration while presenting the records and documents, so the psychological leverage will

provide the two way strategies, an edge (Grenfell et al., 2017). Therefore, this phenomenon

gives rise to biased results by the technical analysts. In order to avoid it, the analysts must give

equal concentration and consideration to every relevant data (Grenfell et al., 2017). For this

purpose a written record for reference should be compiled or demanded for reference while

making statements and presenting conclusions to be availed in future (Grenfell et al., 2017).

Part-list cueing effect. Part-list cueing effect refers to the fact that if certain items from

the list are indicated to be significant then the rest of the items lose their importance and the

observer ending only remembering the indicated entries (Liu & Bai, 2017). Human mind sets

priorities and prioritizes the unique and unusual over the insignificant and mundane information

(Liu & Bai, 2017). Like attract colors catches the eyes, curiosity catches the mind (Liu & Bai,


Therefore, when a person remembers the indicated items, he actually gets curious to

know what made them stand out (Liu & Bai, 2017). Similarly, when an analyst goes through

previous or existing record he has to be unbiased but when relevant personnel start indicating

the important trends to him or certain findings in the records are highlighted, they become

stored in the back of his mind unintentionally and he definitely refers to them while establishing

a perception about the success or failure of the economic situation of a certain business (Liu &

Bai, 2017). The rest of the information subsides and only the marked and mentioned facts and

figures are discussed unless an effort is made to incorporate the overall average and trend (Liu

& Bai, 2017).

The mind finds it easy to divide memories in accordance with priorities and the occasions

or phenomena which stand out, get the higher priority in the memory sections so they become

the first to pop up whenever the technical analysts try to recall their experience of the business

setup they are supposed to analyze (Liu & Bai, 2017). Even when they don’t wish to consider

the indications made, their mind automatically stores the information in a separate chamber and

delivers it readily before any other memory (Liu & Bai, 2017). This makes the technical

analysis of a business venture, biased therefore, the technical analysts needs to look for a

uniform and plain presentation of fact, figures and evidences so that he could make a technical

judgment free from all the external influences.

Peak–end rule. It is a scientifically proven that any experience and events is judged by

humans on the basis of the condition at the time of its peak season or peak time (Harris, 2015).

The best of the relevant memories are more likely to strike the mind whenever a relevant topic

comes up (Harris, 2015). This is known as peak-end rule. The beginnings and ends don’t matter

as much as the peak time, in this scenario (Harris, 2015). The analysts might forget how things

went in the starting and in the end but they will surely remember the peak time due to its

exceptional significance (Harris, 2015). The peak time is also found highlighted in the

newspapers and through mass media, so collecting relevant data and evidences for this span is

far easier (Harris, 2015). Based on that particular span of business success, if the analysts infer

the overall situation of the setup, it won’t be rightly claimed to be an authentic report (Harris,


Uniform and detailed analysis of the whole data without any priority and prejudice is the

foremost rule of thumb for the analysts (Harris, 2015). An authentic average is processed only

through incorporation of each and every bit of information collected. Recording stats after

regular interval of times and then using the list of stats to calculate the average, is the correct

way to go (Harris, 2015). Primary focus upon peak time can cause bias in the stats and the

concluding remarks and findings on the basis of which changes are to be made (Harris, 2015).

This ultimately to failed strategies and mistaken ideas which couldn’t work due to lack of

complete and proper information (Harris, 2015). Again total reliance upon memorized record

has proven to be hazardous for an impartial and fair analysis of a business setup (Pirolli & Card,


Picture superiority effect. The picture superiority effect is another possibility of bias in

observation and analysis (Madigan, 2014). It is a natural phenomenon that human brain is more

efficient towards saving the memory of visual attractions than words (Madigan, 2014). Therefore

it is well-established fact that mages and pictures are more likely to form a significant part of a

human brain than the conversations and words (Madigan, 2014). The more colorful or creative a

picture is, the more will it attract our eyes and brain (Madigan, 2014). Thus it will remain as a

part of individual memory for a longer while t in far more detail than any other form of memory

(Madigan, 2014). While making observations, the analysts might miss the important detail that is

exhibited on a simple piece of paper while recalling the colorful chart that exhibited the annual

offers the company plans to present (Madigan, 2014).


This means that our memory may cause us to miss important information that can

literally shape our whole aim of analysis clarifying the points where the organization lags and

where it exceeds its past records (Madigan, 2014). This is why picture superiority is the

capability of human mind that can lead to biased analysis of economic condition of a business

organization (Madigan, 2014). In order to overcome the bias either all the important facts and

figures must be presented in a visually attractive way or the analyst himself should creatively

highlight them to keep a clear memory of the observation made (Madigan, 2014). Moreover, a

noted record of significant findings can also ease up the task.

Positivity effect. Positivity effect refers to the phenomenon according to which they are

individuals who have higher probability to see the positive aspects of things and ignore the

negative ones (Cheng et al., 2015). It is believed that older adults are more likely to think and

act this way. They tend either to notice only positive aspects or to take every aspect in a positive

way (Cheng et al., 2015). They somehow find a way to infer something positive from each and

every happening around them, no matter how hopeless the situation becomes (Cheng et al.,

2015). In a broader perspective this is a good thing to do and practice however, when it comes

to Technical analysis truth must be held higher (Cheng et al., 2015). In business and economic

analysis game of figures and numbers is far more credible than the game of words (Cheng et al.,

2015). Technical analysis and reporting requires plain and simple presentation of facts rather

than any sort of false statements to keep the concerned parties hopeful and positive (Cheng et

al., 2015).

Technical analysis is not a matter of emotions so excess of both positive and negative

attitude can upset the whole process. No doubt, the business tycoons have to adapt the strategy

of positivity to release pressure and move confidently but when it comes to presentation of

analysis, excess of positivity is as much harmful as excess of negativity. If the analyst is

responsible enough to report the exact facts, he would never allow himself to be influenced by

emotional tools. Neutrality in economic analysis can’t be maintained once the analyst learns to

balance his ways of presentation and ensures zero involvement of emotional tendencies and

manipulative tactics to mislead the followers. When it comes to Technical analysis logics and

truth matters the most and it is meant to identify the past mistake and to propose efforts towards

a constructive future.

Figure 13: Bloomberg, Bloomberg 10 + Year Treasury Index - the above figure displays the

growth of $100 between 2010 and 2014.

Processing difficulty affect. Psychology says that the harder a concept is the more

deeply one analyzes it and the deeper the analysis is, in a situation or phenomenon the longer it

stays as the part of memory (Garner, 2014). So the economic processes or practices which

confuse the technical analysts succeed in getting their attention and they are thoroughly

examined and studied. Thus these practices and process take the bigger room in their memories

so later on they are the most probable one to be used. They more complex or unique the strategy

is the more likely it will be to capture the attention thus driving the analysts to refer to them as

the key concepts or ideal strategies (Garner, 2014). They are left with limited choices if they

depend upon their memory (Garner, 2014). They are one in thousands of phenomenon that

actually strike the mind so hard that the analysts choose to dig further down into the matter.

When they set out to analyze they will only have the clearer memory of those chosen

observations thus this will ease their task (Garner, 2014). On one hand it sounds to be an

efficient way to provide the analyst with an easy way to analyze the business venture but on the

other hand, it is thought to be source of bias making the analysis doubtful and unreliable

(Garner, 2014). So as an analyst the person should avoid the interruption of levels-of-processing

effect to make their study neutral.

Reminiscence bump. The reminiscence bump reveals that in an average life span a

normal individual is most likely to recall the events taken place in his adolescence perfectly as

compared to memories of any other age (Steiner et al., 2014). This means that when analysts are

most likely to refer to the business ventures that flourished or failed during their youth years

because they remember them better than any other time (Steiner et al., 2014). It is believed to be

a source of biased analysis by such analysts. When they recall the past they are likely to hit the

time of their youth and the relevant business setups of those times (Steiner et al., 2014).

Therefore their comparison does not remain generic or universal. It is quite possible that those

memories actually prove to be least significant for the economic analysis (Steiner et al., 2014).

This memory focus upsets the balance and disturbs the precision of the process that is

supposed to be clear and focused while keeping the whole scenario in view and ensuring zero

involvement of bias and favoritism (Steiner et al., 2014). Comparison of the existing business

trends with the specific business span affiliated to the analyst’s adolescence, does not give the

complete picture of the differences to approve a highly productive comparison (Steiner et al.,

2014). In order to attain highly efficient and reliable results, the analysts require taking help

from past records and reliable sources rather than relying upon their memories (Steiner et al.,


Figure 14: Number of Memories and Age at Encoding - this figure displays the

reminiscence bump between the ages of 5-50, and how it evolves through the period of

childhood amnesia and into the period of recency

Rosy retrospection. It has always been observed that the previous generation talks of

their times as the good ones or the better ones than the existing ones (Dawes, 1991). It has been

identified that past always appears positively in the memory of the individuals whenever they

compare it to the existing situation, no matter how pathetic it actually was (Dawes, 1991). Such

psychological upsets can have a direct impact on the fair reporting of individuals as analysts

(Dawes, 1991). This is usually observed in older adults who view past business traditions and

progress as comparatively far better than the existing situation (Dawes, 1991). Then there are

those who believe in their views and assume the same (Dawes, 1991).

In the perceptions of such analysts the existing business conditions and trade setups

always lag behind. This gives rise to pessimism (Dawes, 1991). They don’t think that the

current progress can ever meet the levels of earlier success and triumph in the corporate world.

Their reports specially exhibit the reflection of their views about the past. Instead of relying

upon the facts and figures to infer a conclusion, they rely upon fanciful stories. This is known as

Rosy Retrospection (Dawes, 1991). This hopeless attitude has serious impacts upon the business

ventures (Dawes, 1991). No matter how hard the business tycoons try and how much better they

get, they are always reminded of the ‘glorious’ past. This promotes pessimism. In addition to

that, it causes bias in the fair presentation of facts and figures in order to clarify the technical

comparison between the present and past business conditions (Dawes, 1991). In order to avoids

such a bias the analysts should not show a fanciful affiliation with the past and should only refer

to the past in highly statistical terms just for the matter of quality and quantity comparison with

the present alternatives (Dawes, 1991). Past should be used as a standard to measure the rate of

success or failure but it must be presented in its actual state rather than portraying it as a perfect

era (Dawes, 1991).


Figure 15: Optimism versus Pessimism via the Rosy Retrospective - this graph shows the

degrees to which cognitive biases such as optimism and pessimism can influence memory.

Self-relevance effect. Self-relevance effect implies that a person is more likely to

remember and understand the phenomena or situation which is relevant to him in one or the

other aspect, in a comparatively better way (Samimi, Ravana, & Koh, 2016) Like the sale

strategies these days, are focused on availing the emotional vulnerability of masses for

promoting their products and services (Samini et al., 2016). Like the mobile companies and

network companies are often shown making advertisements focusing upon long distance

relationships and communication with parents and kids who live far apart but are emotionally

attached (Samini et al., 2016). In this way the mothers whose children have gone abroad for

studies are more likely to get influenced and convinced by such advertisements (Samini et al.,


Comfort products are shown to be used by the old aged people bringing ease to their

otherwise difficult lives (Samini et al., 2016). This definitely makes the old aged individuals

eager to buy those products because they relate the elaborated situation to their own (Samini et

al., 2016). They are used as the manipulating techniques because the self-relevance effect is

well-recognized by the business world. For analysts it is a source of biased assessment. The

analysts may get emotionally vulnerable and view the company they like, as the most adequate

one. They may start referring to their personal experiences while assessing the quality of the

products, rather than presenting the reliable facts and figures. Their relevance to a certain brand

or company may cause bias in their fact-presentation (Samini et al., 2016). In such situation, a

neutralized presentation of facts and figures to provide a clear analysis of the existing trends is

mandatory. For this purpose an honest and strong stance must be developed while overlooking

the relevance and emotional attachment (Samini et al., 2016).

Source confusion. Giving mistaken attributes to a specific memory is known as source

confusion (Fernandes, Wang, & Simone, 2015). Like if one sees a girl outside the hospital

crying and instead he remembers seeing her just across the street, he is actually confusing the

source (Fernandes et al., 2015). Source confusion can lead to complete failure for a clear

interpretation of a statement (Fernandes et al., 2015). When an analyst makes a mistake in

sourcing the information accurately he ends messing up the whole aim of assessment and trade

analysis. If the observations made in one firm are related to the other and the growing facts and

figures of one company are attributed to the one which was actually showing a downfall, the

whole scenario (Fernandes et al., 2015). The focus will be deviated to the practices and ideas of

the company for identifying the factors that are playing a role in the elevation in their business

while actually the company faces a downfall (Fernandes et al., 2015). This means that source

confusion can mess up the process of Technical analysis. While it is a common observation that

people remember what they witnessed but forget where and in what scenario the situation took

place, there could be certain ways to avoid it as well (Fernandes et al., 2015). It is believed that

extension of developed reasoning, recording and digging the relations and use of hints to

recover the data exactly can work so as to avoid source confusion (Fernandes et al., 2015).

Spacing effect. Spacing effect refers to the fact that when a person is exposed to a certain

scenario or practice more often and for a longer duration, he is more likely to have a

comparatively better memory of the situation. This idea is identified by the mass media which is

why all TV advertisers are given a fixed span of time so that they couldn’t get biased benefit

through space effect (Swehla et al., 2016). But on the other hand the frequency of displaying a

certain advertisement is unlimited depending upon the price paid by the company of the product

(Swehla et al., 2016). The viewers of the commercials end up remembering those products

during their visits to the grocery stores thus providing large sums of revenue to those companies

(Swehla et al., 2016). This is how spacing effect can prove to be a source of biased decisions

which should actually be made on the basis of the quality and warranty of the product rather than

the frequency with which it is promoted on the screens (Swehla et al., 2016).

So if an analyst observes the sale and usage of a certain product he may not recognize it

as a result of spacing effect and assume it to be a result of a positive experience of the customers

with the products, thus adding a bias to his analysis. Same is true for the analyst himself. If the

analyst is exposed to a certain organization for a longer time, he is more likely to refer to it

while looking for an example. There are higher chances that he knows more about that

particular business setup than any other one so he can mistakenly assume it to be better than

other or worse than others, which is quite a significant error. To overcome spacing error the

analysts have to dig deep into the matters and should investigate every other possibility in order

to make their stance unbiased. They must spend equal time in observing all the relevant setups

so that one exception may not influence their reporting in a negative way.

Spotlight effect. Under the spotlight effect a person assumes himself to be in the eyes

and focus of others and he becomes highly conscious about his surroundings being aware of the

fact that he is being noticed (Forgas & Williams, 2014). In the mistake of the assumption that he

is the center of attention, the person tries to become something he is not (Forgas & Williams,

2014). He tries to act the way that could please and impress others (Forgas & Williams, 2014).

The reality of his personality fades away behind the spotlight (Forgas & Williams, 2014). In

reality this hype does not even have a real face.

This hype is created to avail certain motives. People victimized by the spotlight effect

might make false claims about the use of branded products and the positive changes it brings. If

the analysts start analyzing the usability and quality of the product on the basis of those views

and responses, they end up gathering a pile of lies (Forgas & Williams, 2014). Assessment and

analysis on the basis of such information can provide the trends quite opposite to the ones that

actually exist (Forgas & Williams, 2014). Therefore, spotlight effect must be minimized. In

order to do so the analysts must take a quick look at the normal routine of the dominant figures

rather relying upon their statements while they believe to be in spotlight (Forgas & Williams,

2014). They themselves also have to avoid bias by presenting information just to get attention or

under the influence of attention (Forgas & Williams, 2014).

Suffix Effect. The suffix effect implies that the beginning and the ending figures are

most likely to remain clearly in one’s memory as compared to the rest of the entries in between

(Spoehr & Corin, 1978). Now when a new entry is added at the end, the memorizer may lose

the clear reference of the last one (Spoehr & Corin, 1978). This means that every previous

memory is suppressed when a new one is added. It was discovered by Conrad in 1960. Suffix

effect can be sometimes damaging and a reason of bias during free and fair analysis (Spoehr &

Corin, 1978). This is equally applicable to business world as well.

When an analyst observes and surveys, he is more likely to remember the last or the very

first exceptional observation made. Now if any new information is added to his list, his previous

memory might fade away a little resulting in mistaken statements and assumed middle facts and

figures. This is how suffix effect becomes a reason of biased results. In this way the Technical

analysis or reporting gets more focused upon the last entry of the information panel while

ignoring the impact of earlier entries while they might be more effective and significant. This is

usually unintentional and it depends upon the capability of mind that how strongly an analyst

allows the suffix effect to mold his observations and analyses. A well examined study of noticed

facts and figures and a thorough review of the experiences allow the analysts to make neutral

decision and make rational choices rather than getting victimized to this sort of unintentional

bias. A total reliance upon memory could bring loss to the report of analysts in this context. A

written and recorded data can be of much help to avoid such biases.

Suggestibility. As the word shows this sort of bias is created due to unwanted

suggestions of others (Kirsch & Braffman, 2017). During a critical and crucial decision a person

becomes so nervous that it becomes easier for him to fall for the choices presented to him by the

bystanders (Kirsch & Braffman, 2017). Same goes for the trade analysts who are surrounded by

people from all walks of life (Kirsch & Braffman, 2017). During their survey analysis they may

fall prey to the suggestions made and might start seeing things in a context defined by others

(Kirsch & Braffman, 2017). This has high impact upon their unbiased and neutral decisions that

are actually supposed to be free from any sort of external influence (Kirsch & Braffman, 2017).

The analysis should be based upon the existing situation and relevant facts and figures

while the personal opinion of the analysts as well as other relevant people should not be taken in

consideration in the process. When the ideas of a trade analysts start to be affected by emotional

influences by others, their decisions become less reliable. An efficient analyst will never allow

his decisions to be driven by others’ opinions and suggestions. He will focus upon his task and

will act responsibly. He will look for evidence and practical logics to back up a point and work

on it. Moreover, an analyst requires standing firm and focused so that even when he hears

others’ suggestions he may not make them the basis of his decisions and analysis.

Figure 16: Suggestibility - this figure shows trends in suggestibility as Actual 1yr

forward P/E long vs. short, and IBES forecast 1yr forward P/E long vs. short, as well as the

2012 actuals between Feb 03 - Oct 12.


Verbatim effect. Verbatim effect refers to the idea that if people witnessed a business

presentation they will be less likely to remember the details of facts and figures whereas they

will have a general idea in mind relating to the presentation (Abadie, Waroquier, & Terrier,

2017). This is quite common nowadays when everyone is in a hurry and catches only that

information which is only readily available and which succeeds in putting a mind capturing

impact or an eye catching impression (Abadie et al., 2017). This is quite obvious to affect the

cognitive biases of perceptions, observations and decisions of trade analysts (Abadie et al.,

2017). While reviewing the past trends they may miss the important details and only the news

that created the hype succeed in capturing their minds (Abadie et al., 2017). So in the long run

they are more likely to apply only those strategies and ideas which were left in their back of

mind while significant ideas might have been forsaken or forgotten (Abadie et al., 2017).

Moreover, the analysts may consult relevant individuals or experts for guidance and insight into

the tactics and techniques for successful business (Abadie et al., 2017). Their statements are

most likely to have a direct impact upon the corresponding understanding developed and the

information inferred by the analysts. Sometimes these general perceptions and highlighted areas

are not the only one to be actually significant and effective, but somehow they succeed in

leaving the mark on the minds of the analysts as human beings pressing them to take measures

and take decisions that are most likely to be biased (Abadie et al., 2017).

Von Restorff effect. Under the Von Restorff effect, the unique, the odd one and the

unusual one always stands out (Schmidt & Schmidt, 2015). In this way the products or services

which succeed in creating a unique impact and impression, become more likely to be

remembered by the witness (Schmidt & Schmidt, 2015). This implies that when something

stands out, it is more likely to have a greater impact on the witness’s psyche resulting in a long

lasting memory about it (Schmidt & Schmidt, 2015). As trade analysts the professionals are

quite likely to get biased due to this very effect. When analysts look for the trends responsible

practices they identify the unusual changes and ideas instantly and assume them to be the cause

of up rise or downfall instead of digging deep and ensuring that they got to the right point

(Schmidt & Schmidt, 2015).

This is due to the fact that they get psychologically biased by the unique or unusual

phenomena more easily rather than getting down to the root cause (Schmidt & Schmidt, 2015).

Like if a particular product is promoted through advertisement and the advertisement is highly

offensive to women, the analyst will readily assume that the failing business for that particular

product is due to the advertisement rather than digging deep to find the reliability and quality of

the product, which matter far more than the cause that was remembered due to its unusual

projection. As it is revealed that these bias has direct impact upon the memory of the analysts,

the better way to avoid it, is to consider memory as a secondary or unreliable source. The main

focus should be upon the fact and figures gathered to authentic practical means rather than

things that can cause emotional and mental bias resulting in faulty assumptions and wrong

interpretations. The analysts should keep written records of the findings so that at the time of

analysis compilation they don’t have to rely upon their memory altogether.

Zeigarnik effect. It is believed that human mind is more likely to remember an account

of the tasks that were left incomplete or were hindered due to one or the other problem involved

(Savitsky, Medvec, & Gilovich, 1997). When a specific task is assigned it builds a certain level

of pressure over the one responsible for it (Savitsky et al., 1997). As the task progresses further,

the tension level starts declining (Savitsky et al., 1997). In case the task couldn’t be achieved due

to an intentional or unintentional break, it is most likely to strike the mind as the tension stay to a

higher level in such case (Savitsky et al., 1997). The urge of making effort to complete certain

tasks keeps on reminding the person about the task at hand to be prioritized over the thought of

completed tasks (Savitsky et al., 1997). This cognitive bias is equally likely to affect the

assessment capabilities and decision making processes of trade analysts (Savitsky et al., 1997).

Once they come across a situation which hinders their smooth trade, they are more likely

to look back and observe the past trends to realize where they are at fault and how they can use

the past experiences to overcome their challenges that have caused a pause in their trade

(Savitsky et al., 1997). In this way Zeigarnik effect can prove to be productive for the traders

but it often becomes a reason for biased perceptions and decisions as well. There could be

personal issues and problems that can engage the person due to their pressure they create like an

unresolved family issue. In such case the traders are less likely to focus upon their business

because their mind is engaged in looking for a suitable solution of the unfinished task at home.

An effort to diminish such situations adequately and on time could get their minds focused on

their trade matters ensuring an unbiased process of trade assessment.



The study has revealed that cognitive bias has a significant role to play in financial

technical analysis. Business organizations hire professional analysts to assist them with their

financial decisions and to monitor their investment portfolios. An analyst who is subject to

cognitive biases will be that much less useful in his role, as his evaluations and predictions will

be suspect. The behavioral biases described above can be the most damaging of all, because they

can interfere with how the analyst executes his job functions. This can affect the financial health

of the company and often, its very existence. While cognitive biases cannot be eliminated, they

can be controlled for—most often, by a second party checking the analyses—and it is possible to

identify particular biases that a given analyst is prone to. The analyst should be aware of his own

tendencies to bias and be prepared to adjust his reports for possible bias on his part.

Discussion and Conclusions

The study of human cognitive biases has been extensive. The above review illustrates

many of the most common identified biases. Many of these biases directly affect how financial

analysts evaluate data and render opinions. As financial analysts are human, they are as subject

to cognitive bias as anyone else, even though their profession is ostensibly one of strict

objectivity. Financial analyst professionals, like doctors, legislators, university professors, and a

host of other professionals in high-stakes fields, must be aware of their human tendency to be

swayed by cognitive biases and prepared to compensate for them. Becoming educated in the

various cognitive biases that could affect their judgment is therefore necessary for them to retain

objectivity. The below biases are examined in the context of Barnes (1984).

Cognitive Biases in Estimation

One of the tasks of a financial analyst is to estimate the current worth or value of a

security, commodity, company, business enterprise, or investment vehicle. Such estimation

should be on strictly objective criteria; however, there is an element of subjectivity to the

process, especially when a significant portion of that estimation involves predicting the future, as

is often the case in financial analysis. This section will illustrate some of the ways cognitive bias

can lead to errors in estimation.

Anchoring bias in when an evaluation is inappropriately tied to a baseline or standard

than does not actually apply to the situation. One example would be a homebuyer evaluating the

price of a new home in Los Angeles based on what he would pay for a similar home in Kansas

City. A financial analyst might incorrectly evaluate a company based on past performance of that

company or that of other companies in the sector—an anchoring bias that would be incorrect,

since economic conditions change over time. For instance, a company that is breaking even

during a recession might actually be doing quite well, but anchoring would cause an analyst to

inappropriately compare current to past performance (when economic conditions were better).

Confirmation bias is when a person selectively perceives information that supports his

preconceived notions, to the exclusion of other information that does not support them. An

example would be a politician stating that a given country’s citizens are a security threat based

on one or two incidents of terrorism (and ignoring all other incidents not involving citizens of

that country). A financial analyst who feels optimistic about a given business sector may

selectively cull information about the stock performance of companies in that sector that is

positive and ignore any information that does not support that positive outlook; conversely, he

may accentuate all negative information and ignore all positive information.

Framing is when a statement is couched in a positive or negative way. For example, one

could say that life expectancies in Africa are ten years less than they are in the industrialized

world—or one could say that they are ten years greater than they were twenty years ago. Both

statements could be true, but one statement (of the same data) is positive while the other is

negative. A financial analyst could report a company’s prior year earnings by saying they

represented a 5% increase over the previous year (positive) or that those earnings were lower per

share than those of comparable firms in the sector (negative). The framing effect lies in what the

data are compared to and how that comparison is stated. The same exact data can thus be used to

support two entirely opposite evaluations.

The more is more fallacy is the assumption that greater detail equates to greater accuracy.

This is especially prevalent when one is attempting to predict an outcome. One example would

be the horse racing tout publication Racing Form, which gives exhaustive detail on the horses

that will be running on major tracks in the United States. Much if not most of this information,

however, is completely useless, such as what the weather was like the last time a horse raced.

The sheer volume of information, though, lends an air of respectability. In financial analysis,

analysts frequently bolster their analyses with voluminous charts, graphs, and tables. That the

data thus presented may not actually support the analyst’s contentions is unimportant; what

matters is the volume thereof and its presentation. The bias is that the analyst may himself

believe that his conclusion is accurate because it is “supported” by so much data.

Overconfidence bias is when a person believes in his own expertise to the point where he

overrides models and data that suggest his conclusions are wrong. An example would be a

person who ignores nutritional information regarding certain foods because he believes that they

have certain beneficial qualities that they do not actually have. This is an offshoot of

confirmation bias, in that the individual will only consider information that supports his existing

beliefs. A financial analyst may be subject to overconfidence bias when he has been correct in

the past; he may thus feel that his predictions will again be accurate even when they are not

supported by the data or by thorough analysis.

Availability bias is when one predicts outcomes based on examples from the past, even

when those examples do not apply in the present situation. This is the basis of many

superstitions, even nonsensical ones, such as “I didn’t wear my lucky socks last week, and the

Bears lost.” This is also a source of false correlations, such as “Whenever a Republican is elected

to the Presidency, the stock market goes up.” (This is a common belief, in fact, but the data does

not support it and furthermore, the market is bound to go up sometime after the election.) A

financial analyst subject to availability bias may base predictions on irrelevant examples from

the past: “The last time there was a war in the Middle East, the price of wheat rose.” The bias is

also an artifact of the logical fallacy that correlation equals causation.

Substitution is when an inapplicable question is substituted for the appropriate question.

An example would be if a patient asks a doctor, “Is broccoli good for you?” and the doctor

answers, “I don’t like it.” Worse, he might say “no, it isn’t” when he is really asking himself

whether he likes it or not. An analyst using substitution might recommend a stock based on the

fact that he likes the company, or that he has done well with the stock in the past, or that he is

interested in that business sector. Usually, financial analysis is goal-directed, in that it attempts to

evaluate a specific thing. The question a financial analyst asks, therefore, must be well defined.

However, when substitution takes place, the analyst is asking a different question than the one


The halo effect is when a person considers only the positive aspects of something in

evaluating it. One ubiquitous example from real life is when we evaluate a person by his or her

appearance. It is well known that attractive people do better when applying for jobs, even when

personal attractiveness is not an element of the job. The halo effect makes HR personnel evaluate

the candidate’s other characteristics more favorably. A financial analyst subject to the halo effect

might evaluate a company more favorably due to a recent success or its membership is a “hot”

sector (such as applied tech). The halo effect was quite pronounced in the “dot com bubble” of

the late 1990s, when stocks were drastically overvalued (and enthusiastically recommended by

financial analysts) simply because they were those of Internet companies.

These cognitive biases lead to errors in evaluation. These errors could be overvaluing or

undervaluing a stock, leading to inaccurate “buy” or “sell” recommendations; they could be in

misinterpreting the financial health of a company they could also lead to inaccurate earnings

predictions. It is difficult to overcome these biases, as all of human cognition is based on prior

information and it is only natural to tap into that information to evaluate the present.

Also, one must be careful not to discount past experience and knowledge altogether.

Someone noting such past information is not necessarily biased; nor, however, is he necessarily

completely objective. The job of a financial analyst in vetting his own evaluations is to ask

himself if he might have been subject to cognitive biases in doing so. Ultimately, the only

defense against cognitive bias is to be aware of it. The human brain, though immensely powerful,

is not a perfect calculating machine; it is not a computer and emotions and biases affect the

thought process.

The evaluations of a financial analyst, therefore, must be considered in context of other

evaluations, both those made by that analyst in the past and those made by other analysts of the

same companies and securities. An analyst whose evaluations consistently deviate from those of

others may be experiencing cognitive bias. Many securities analysts continued to report rosy

evaluations of stocks right up to and even through the last three major stock market crashes.

Many financial analysts continued to recommend real estate investments up to and during the

2007-2009 housing bubble crisis. They could have been subject to any or all of the evaluative

cognitive biases listed here, as could all of those who listened to them and took their

recommendations at face value.

In fact, one of the most insidious aspects of cognitive biases is that we tend not to

recognize them in others. Those who were inclined to invest in stocks or real estate prior to the

2007-2009 recession were predisposed to believe rosy investment recommendations from

financial analysts. They trusted those analysts implicitly, as they believed that those experts were

completely objective and not biased. But as the research shows, there is no such thing as a

human being who is immune to cognitive bias, expert or not.

Investment Decision Biases

Investment decision biases are artifacts of cognitive biases that specifically lead to

incorrect investment decisions. They manifest themselves when a person—a financial analyst or

otherwise—makes an investment decision according to less-than-objective criteria. Below are

detailed some examples. These are also as per Barnes (1984).

Herding is a very common investment decision bias. In a nutshell, it is “doing what

everyone else is doing.” In the stock market, herding attenuates the effect of any market swing,

as the herding effect means that as people perceive that others are buying or selling, they want to

“follow the herd.” In investment decisions, that means that popular investments attract attention

(and further investment) simply because they are popular, not because they have any intrinsic

merit. In fact, it could be said that following the herd is the worst possible strategy, because the

price of an asset that everyone else is buying will be inflated, while the price of an asset that

everyone else is selling—in each case, the worst time to buy or sell, respectively. In fact, there is

a school of thought in the investment field called contrarianism, which posits that the best

investment moves to make are those that directly oppose the prevailing popular mindset. Herding

has been at the heart of every boom-and-bust cycle, in the stock market, real estate, or

commodities. It could be stated as a bias that views the value of an investment by its popularity

rather than its intrinsic worth.

Loss aversion is the reluctance to accept a loss, even when that might be the best thing to

do. Tversky and Kahneman (1996), pioneers in behavioral economics, identified irrational loss

aversion as a very common trait in individuals. Framing also enters into loss aversion, as people

will accept a negative outcome more readily if it is framed positively, for instance if a person

loses $200 out of a $300 investment, that person will view the result more positively if it is stated

as “saved $100.” Loss aversion leads investors to hold on to an asset longer than they should and

conversely, to sell an asset that has appreciated sooner than they should. The loss aversion effect

leads, ironically, to investment decisions that exacerbate losses and minimize gains, which

produces outcome that should be unacceptable to the risk-averse.

Mental accounts are ledgers kept in the mind of opportunities both seized and missed. A

person who feels he has missed an investment opportunity may feel reluctant to seize that

opportunity even if it is still available. Furthermore, if that opportunity presents itself again, the

individual will be reluctant to take advantage of it. This is possibly reflected in conventional

wisdom by such sayings as “opportunity knocks but once.” In actuality, in the investment field,

multiple opportunities present themselves over time, and the same opportunity may present itself

over and over again. But mental accounts may keep a person from seizing a second chance at a

good investment opportunity. An adjunct of this effect is when a person tries a new investment,

even a dubious one, simply because of its novelty.

Status quo bias is a tendency to prefer things as they are. Investors who experience status

quo bias are reluctant to make changes in the composition of their portfolios, even in the face of

strong indications that they should make such changes. One sees status quo bias in the political

arena in the philosophy of conservatism, which at its heart is a dislike of change. However, in the

investment world, change itself is the only constant and regular portfolio evaluation and

readjustment is necessary to maintain optimal returns and continue to meet investment goals.

Over-optimism is, in the broadest sense, viewing the future too favorably. In the

investment field, over-optimism is viewing an asset’s prospects unrealistically. The effect is

common when a financial analyst is talking about a stock he has previously recommended and/or

owns himself. This effect merges with confirmation bias, in which the analyst seeks out positive

news and information about an asset and ignores or discounts less favorable information. Over-

optimism can be blamed for many of the recent boom-and-bust cycles in financial markets, as

per the “irrational exuberance” reported by Federal Reserve Chairman Alan Greenspan during

the 1990s dot-com bubble.

Recency bias is the tendency to overweight recent events and discount long-term trends.

Financial analysts who are subject to recency bias recommend investment decisions based on the

recent short term and improperly ignore long-term trends. Investors with recency bias tend to

overreact to news, overestimating its significance, and as a result tend to “churn” their portfolios,

buying and selling in reflexive reactions to short-term events. In fact, many financial advisors

recommend that their clients refrain from reading the daily stock market reports, as recency bias

may otherwise cause them to make rash decisions.

Hindsight bias is when a person assumes that he always knew an outcome would happen.

Another way that this bias manifests is when a person tells himself that he should have known all

along that something that surprised him would happen. Both types of this error involve the

individual’s overestimating of his past predictive power. In the investment field, hindsight bias

leads the financial advisor to think that an investment event—such as a stock market crash—

could have been predicted and thus, to think that he should have be able to see it coming. This

leads to future waste of effort in trying to anticipate every contingency in what is actually a

chaotic environment.

Causal thinking is a subset of the classic causation/correlation fallacy. The investor thinks

that a news event, which may actually be totally unrelated to the markets, causes a market

fluctuation. One sees this kind of thinking in mass media reports of daily stock market

movements, with language such as “Stocks trended higher today on news that…” The word “on”

is a code word for “because of,” which is the way readers are supposed to interpret it. Financial

analysts who ascribe asset price movements to a specific positive or negative event regarding

that asset (or equity, or company) are often guilty of causal thinking, as asset price fluctuations

can be due to literally thousands of causes and to ascribe them to any one particular cause is to

make the fundamental correlation/causal error. That error is thinking that correlation (two events

happen at the same time or closely follow one another) equals causation (one event caused the

other). This error can lead to future investment decision errors, as the individual will wait for the

supposed triggering event to happen again.

The cognitive biases examined in this paper are not limited to the above, but most of

those biases do fall into those categories. Essentially, cognitive bias is an error of perception, an

error in prediction, or an error in evaluation. All three of those mental activities are performed by

a financial analyst. Therefore, a robust understanding of cognitive biases and how they influence

a person’s thinking is essential for any financial analyst as well as for those who interpret and

rely on an analyst’s analyses. It is impossible to remove cognitive bias and its expressions and

effects, so the analysts must be aware of his predisposition for them and the investor must be

aware that analyst reports can be and probably are biased.

This paper has opened with the presentation of aims and objectives of the study. It is then

followed by an attempt to provide an insight into the topic. The essence of cognitive biases is

described in detail in context of technical analysis. The three categories of biases are described

explicitly. Finally all the possible forms of biases that are possibly affecting technical analysis

are listed with elaboration and examples. Each kind is followed by a solution of the issue. Finally

the inferences made are combined in the result section. The study has thrown light upon a new

aspect of technical analysis.

With the help of relevant resources, significant observations have been mentioned in the

study. It can be safely stated that corporate world is as much prone to biased analysis as any

other aspect of life. The study has revealed that cognitive bias plays a role in technical analysis.

Limitations and Future Recommendations

The study has examined various types of bias on an individual level. However, it did not

suggest specific strategies to overcome those biases. Future studies should focus on ways to

compensate for bias, by both the analysts and those who interpret and rely upon his

recommendations. In particular, there should be a way to systematically evaluate the reports of

analysts and cross-compare them with those of other analysts, as the latter may be subject to

different biases than the former.


The robust amount of research on cognitive biases was cross-compared with those biases’

effects on technical analysis. The most important aspect of that research and future research on

the topic is to realize that financial analysis is a subjective as well as objective endeavor and that

cognitive bias affects the subjective aspect of such analysis. It is all but impossible for

individuals to be dispassionate and completely objective; therefore, business organizations

should learn to view the reports of financial analysts as potentially biased. That does not make

them inaccurate as long as the analyst’s biases are identified and controlled for.


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