Atlas of Cognitive Biases #20 · Overconfidence. Confidence isn't accuracy
What it looks like in trading
“everything lines up, so it has to work”
intuition treated as proof
trusting a method that has never been tested
An example from a session
All the indicators “confirm” a long. But many of them measure the same thing (price over the last few minutes), so their agreement adds nothing. Confidence grows; information doesn't.
What the research says
Daniel Kahneman describes assessing officer candidates in the Israeli army: the assessors were very confident in their predictions, even though those predictions barely forecast later performance. Kahneman and Klein (2009): intuition is reliable only in highly predictable environments with fast, clear feedback. The market meets those conditions only partly.
Confidence in a judgement comes from how coherent the story is, not from how accurate it is. When the pieces fit together we feel we know, even if the data has little predictive value.
How does the illusion of validity show up in trading?
Typical signs: “everything lines up, so it has to work”; intuition treated as proof; trusting a method that has never been tested.
Educational content, not psychological advice or an investment recommendation.