What might lead to incorrect decision-making in day trading?

• A. Adhering to a trading plan
• B. Using real-time data
• C. Psychological biases like confirmation bias
• D. Thorough market research

Answer: (C)

Psychological biases, such as confirmation bias, can lead to incorrect decision-making in day trading because they cause traders to favor information that confirms their pre-existing beliefs or hypotheses while disregarding contradictory evidence. This bias can skew a trader's perception of market signals, making them overly confident in a position or strategy that may not be supported by the data. As a result, they might resist adapting to new information that could indicate a change in market trends or a need to reassess their trading approach.

In contrast, adhering to a trading plan, using real-time data, and conducting thorough market research are all strategies designed to foster informed decision-making. These practices help to mitigate emotional responses and rely on structured and analytical approaches, reducing the likelihood of letting psychological biases influence trading behavior.