Trading with hypotheses, rather than conclusions, is an approach that emphasizes the importance of testing and gathering information before making a trading decision. This approach can help traders avoid the pitfalls of confirmation bias and overconfidence.
When trading with hypotheses, a trader will form a theory or idea about the market, and then test it by gathering data and analyzing it. This can include studying charts, looking at technical indicators, and conducting fundamental analysis. Once the data has been analyzed, the trader can then make a decision about whether to enter or exit a trade, or make adjustments to an existing position.
The key advantage of this approach is that it allows traders to be objective and to question their assumptions, which can help them avoid making decisions based on emotions or preconceptions. This approach also encourages traders to continuously gather new information and adapt to changing market conditions.
It’s important to note that no one can predict the markets with certainty and hypotheses should be always tested and challenged. A good approach is to form different hypotheses and test them with different set of data and market conditions. Traders should also be prepared to adjust or abandon a hypothesis if the data does not support it.
Trading with hypotheses, not conclusions, is a way to approach the markets in a more scientific and logical way. This approach can help traders make better decisions, reduce the risk of emotional trading, and increase the chances of long-term success.