"Leveraging Bias and Mental Models for Intelligent Decision Making in Financial Markets"

Alessio Frateily

Hatched by Alessio Frateily

Nov 08, 2023

3 min read


"Leveraging Bias and Mental Models for Intelligent Decision Making in Financial Markets"


In the world of trading and finance, there are two powerful concepts that can greatly enhance our decision-making abilities: bias and mental models. While bias refers to systems that exploit repetitive behaviors in financial markets, mental models are frameworks that help us simplify and understand the complexities of the world. By combining these two concepts, we can gain valuable insights and improve our trading strategies. In this article, we will explore the different types of bias in financial markets and how they can be leveraged, as well as delve into the concept of mental models and their relevance in making intelligent decisions.

Understanding Bias in Financial Markets:

Bias refers to systems that aim to exploit repetitive patterns in the movement of financial instruments. These patterns can occur within certain hours of the day, specific days of the week, or even months of the year. Intraday bias focuses on identifying repetitive movements within a trading session by creating scripts that initiate trades at the beginning of each hourly bar and close them at the end. Intraweek bias, on the other hand, looks for trends that occur over consecutive days or portions of a trading week. Intra-monthly bias seeks exploitable trends within a working month. Lastly, seasonal bias identifies regular trends that occur within a year, although they may be less frequent and require longer-term analysis.

Leveraging Bias in Trading Strategies:

Bias strategies can be effectively applied to highly liquid markets such as Gold Futures or Ethereum, which exhibit interesting intraday bias. By identifying and capitalizing on repetitive behaviors, traders can create automated strategies that show promising results. Additionally, bias strategies can be applied to other liquid markets like Soy, Crude Oil, or Heating Oil, allowing traders to intercept and exploit repetitive behaviors within a specific time frame.

The Power of Mental Models:

Mental models, on the other hand, are cognitive frameworks that help us simplify the complexities of the world and make sense of the information we encounter. They are representations of how something works, allowing us to compress and organize information in our minds. Mental models serve as a guide for decision-making, enabling us to understand the relevance of certain factors and reason effectively.

Applying Mental Models in Financial Decision-Making:

There are numerous mental models that can be applied to financial decision-making. For example, the velocity model helps us understand that both speed and direction are crucial in financial markets. The reciprocity model highlights the importance of positive actions and taking the initiative, which can significantly impact outcomes. The margin of safety model reminds us that things don't always go as planned, and it is essential to have a buffer in our strategies. Additionally, the relativity model teaches us that our perspectives may have blind spots, and considering different vantage points can lead to better decision-making.

Actionable Advice:

  • 1. Combine Bias and Mental Models: Incorporate bias strategies into your trading approach by identifying repetitive patterns and leveraging them for profit. Additionally, utilize mental models to simplify complex market dynamics and make more informed decisions.
  • 2. Conduct Thorough Analysis: Take the time to analyze different time frames, such as intraday, intraweek, intra-monthly, and seasonal trends, to identify potential bias opportunities. Combine this analysis with a strong understanding of relevant mental models to enhance your trading strategies.
  • 3. Continuously Learn and Adapt: Stay updated with market trends, new bias patterns, and emerging mental models. The financial markets are dynamic, and it is crucial to continuously educate yourself and adapt your strategies accordingly.


By combining the concepts of bias and mental models, traders can gain a competitive edge in the financial markets. Bias strategies allow for the exploitation of repetitive behaviors, while mental models simplify complex market dynamics and guide decision-making. By incorporating actionable advice such as combining bias and mental models, conducting thorough analysis, and continuously learning and adapting, traders can improve their trading strategies and make more intelligent decisions.

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