Availability is another member of the long list of cognitive errors that can affect your trading and investing performance. This happens because people are more likely to remember events that are recent, easy to remember, or relevant to them.
For example, in a famous experiment in the 70s’, a group of people was asked to listen to a list of names. This list included (famous) men and less famous women, but there were more women than men. The participants often thought there were more men than women on the list.
In investing or trading, when a recent event affects your judgment, you are experiencing the availability bias. For example, after a market crash, you may be less willing to invest, even though the market has already recovered. Hence, you may miss good opportunities. Or you may take the wrong decisions.
What to do then? Every time you are about to take a decision, stop for a while and ask yourself why you are taking that decision. Is it based on your strategy, or is it coming from other sources like tips of friends and recent big news? This will help you distinguish between good actions and those related to availability bias.