Confirmation Bias
Seeking and believing evidence that supports a position already held. In markets it is amplified by the sheer volume of evidence available on every side.
MadStockAlerts Research · Updated August 28, 2026
What to take away
- Evidence is sought and weighted asymmetrically once a position exists.
- Financial markets supply enough data to support any conclusion.
- Holding a position changes how neutral information is read.
- Writing down what would falsify a view is the standard countermeasure.
- The asymmetry begins at the position, not at the analysis.
MAD Academy Training Video · 0:45
You Will Find What You Look For
Once a position exists, the search itself becomes biased — and the fix is a written disconfirming condition rather than an intention to stay objective.
This lesson is part of a Stock Alerts + Tools plan.
How it operates here
There are hundreds of indicators, dozens of timeframes and an unlimited supply of commentary. Someone holding a long position can assemble a genuinely persuasive case within minutes, and so can someone holding the opposite position on the same security.
The abundance of evidence is what makes this bias so much more dangerous in markets than elsewhere. In most domains a contrary fact eventually becomes unavoidable. Here, a supporting timeframe or metric can always be found.
It starts at the position, not the analysis
The asymmetry appears once a position exists. The same chart is read differently by a holder and a non-holder, and the same news item is weighted differently.
This is why analysis conducted before entry is more reliable than analysis conducted after it, and why revisiting a thesis while holding is so difficult. The person reviewing is no longer the person who formed the view; they now have something to defend.
Falsification, written in advance
This works because the falsification condition is written while the position does not yet exist and there is nothing to defend. It is the same principle as placing a stop before entry, applied to the reasoning rather than to the price.
- 1State what would make this wrongA specific, observable condition. Before any money moves
- 2Enter
- 3Check that one conditionNot the news, not the message boards. The condition
- 4It happened: the idea is wrongWhether or not a reason for it has appeared yet
Seeking the other side
Deliberately reading the strongest available case against a position is the other conventional practice. It is harder than it sounds, because the search itself is subject to the bias.
The useful version looks for the best argument rather than the weakest, because dismissing a poor counter-argument reinforces the bias rather than testing it. A person who has refuted the silliest bear case feels better informed and is not.
It operates on search, not on judgement
The bias is usually described as believing what suits you, which makes it sound like a failure of honesty. The more accurate description is narrower and harder to notice: it operates on what gets looked at, before any judgement happens.
Someone holding a position searches the company's name and reads the first several results. Someone considering a short searches the same name and reads the same results. Both then evaluate what they read reasonably. The divergence happened earlier, in which results were opened, which follow-up questions were asked, and which source was closed after a paragraph.
This is why resolving to be objective does not work. The bias is not applied to the evidence; it selects the evidence, and by the time judgement is engaged the sample has already been assembled.
It also explains why the bias survives being informed about it. Knowing that a sample is skewed does not un-skew it, and the feeling of having considered both sides is produced by the search rather than by its balance. The only countermeasures that work are procedural: fixing what will be read before the position exists, or reading a case written by someone who holds the opposite view.
The strongest version of the other side
The standard advice to consider the opposite case is weak in practice, because the opposite case that comes to mind unprompted is a weak one. It is easy to construct a bear argument that is obviously wrong and feel that the exercise has been done.
The stronger version is to find the best argument actually being made by someone who holds the opposite position, and to be able to state it in a form they would accept. If a short case cannot be summarised in a way its author would recognise, it has not been read, and dismissing it is dismissing something else.
- Short interest that is high and rising says a considered opposite case exists and has money behind it, whatever it turns out to be.
- The company's own risk factors are the bear case written by people with every incentive to understate it, which is why the newly added ones carry weight.
- A short seller's published thesis is a hostile document with a financial motive, and it is also the only place the strongest version of the argument is usually written down.
- The absence of any coherent opposite case is itself worth noticing, because it is rare and usually means the search was not wide enough.
None of this is about being persuaded. The purpose is to know what the disagreement actually is, so that when the position moves against the thesis it is possible to tell whether the reason has failed or the price has merely moved.