What is bias?

A bias is a reasoned lean.

Your bias is your working view of which way a market is more likely to move, and how confident you are in that view. It can be bullish, bearish or neutral.

It is not a prediction, and it is not a trade signal. It is a conclusion you reach from evidence, and it tells you which direction deserves your attention and which setups to treat with caution.

The key word is evidence. A bias built on a feeling is a guess. A bias built on several pieces of evidence that you can name and write down is something you can test, and learn from.

Four layers, four questions.

We build a bias from four layers. Each one answers a different question about the same market.

The part nobody explains.

Here is a made up scenario, to show the thinking. It is not a view on any currency today.

Suppose a currency has historically tended to weaken at this time of year. On seasonality alone, you would lean bearish.

But this year is different. Inflation is high, driven by something unusual such as a conflict pushing up energy prices, and the central bank is raising rates to deal with it. Higher rates tend to support a currency. That layer now leans the other way, so your lean becomes weaker. You might end up closer to neutral.

Then you look at the charts. If the currency were truly weak, you would expect its pairs to be trending clearly. Instead, some are drifting sideways. That is another sign that the bearish lean is not being expressed in the market yet.

Same currency, same month, and four layers giving mixed answers. Writing that down is the whole skill. A trader who only looked at seasonality would have been confidently wrong, and one who only looked at the chart would have missed the reason it was messy.

Trending or ranging?

Price action starts with one simple question. Markets are usually doing one of two things.

• Trending: a run of higher highs and higher lows (an uptrend), or lower highs and lower lows (a downtrend).
• Ranging: price bouncing between a support level and a resistance level, without making progress in either direction.

If your other layers lean one way but the chart is ranging, that does not mean your bias is wrong. It means the market has not confirmed it yet. That is useful to know, and it often means waiting, or taking smaller risk.

Bias is a scale, not a switch.

A simple way to keep yourself honest is to score each layer as bullish, bearish or neutral, and see how many agree. Here is the made up scenario from above, written as a scorecard.

An illustration only, not a market view.

Here, one layer says bearish, one says bullish and two are neutral. The honest conclusion is neutral, with low confidence. When most layers agree, your confidence is higher. When they split, caution is the sensible position. It is a way to think, and not a formula or a signal.

The layers do not have to carry equal weight. We lean most on seasonality and central bank policy, and treat COT as a supporting clue. Decide your own weighting, write it down, and stick to it.

This is what the Journal is for.

Working out a bias is useful. Writing it down every time is where the learning happens.

The Trade Journal already has a Methodology and Confluence step with fields for Price Structure, Location, Central Bank Bias and Seasonality, so each trade records the layers behind it. The Trade Notes are there for anything else, such as what the COT report was showing. Over time you can look back and ask honest questions. Did the trades where the layers agreed feel different from the ones where they split? Which layer did you trust too much?

You can only improve what you can see, and a written bias is something you can see.

What comes next.

This is the first part of a short series on building a bias and using it. Coming up: a closer look at each layer, how to tell a trending market from a ranging one, and how to time an entry once your bias is clear. In the meantime, the tools for each layer are already on the site.