Confirmatory Bias

Going short is easy but remaining short is difficult. Or so I thought, when the market kept bouncing up to close slightly positive yesterday. To top it, my friend Operatorman called me to tell me that the RBI will cut repo rates by 25bps on 17th April which will trigger a rally in the markets. "I am doing you a favor", he said. "The market will expire this April at 5600 levels and I do not want you to get hurt" Great! It just felt like not just the market but even the RBI was out to get me.

Before I could feel any worse, I promptly called up a few fellow trend following traders knowing fully well that most trend followers would be short on the Nifty. That indeed proved to be the case and I had a nice discussion about how this market could not go anywhere but down given the problems in the world in general and India in particular.

Of course I know that a few of us agreeing that Nifty is a short does not make my trade any more right or better. I know that what I did was only Confirmatory bias whereby one tends to notice and look for information that confirms ones beliefs. But did it help? You bet it did! At the end of those conversations I felt much better and strode out of the office feeling much lighter.

By the time, I finished writing this note, Nifty has already opened down and is trading at 5220. I will cut my short position and go long only above 5278.