Bias First
The Second Read — Post 1 of 12
This is Post 1 of The Second Read, a weekly series on how markets actually work — two levels deep. If you missed the intro, start here.
There’s a version of Monday morning most traders know well.
You sit down, open the chart, find a level you recognize, and start thinking about the trade. Maybe you check the news. Maybe you scan a few tickers. Then you put the position on because it looked right in the moment and you’d been watching it long enough that doing nothing felt wrong.
By Wednesday it’s offside. You’re not sure whether to hold or cut. You tell yourself you’ll see how Thursday’s data prints. By Friday you’re flat and slightly annoyed, already looking at next week’s chart as if the problem was the setup.
It wasn’t the setup.
It was what you skipped before you opened the chart.
The thing most traders skip
I did this for longer than I want to admit.
I had setups. Good ones sometimes. Clean levels, clear entries, logical stops. And I kept having the same experience. The trade made sense on the chart but the week went against me anyway. Not every time. But enough times that eventually I stopped blaming the setup and started asking a different question.
What was I missing before I looked at price?
The answer, after enough bad weeks and honest post-mortems, was a bias.
Not a prediction. Predictions are fragile. One bad data print and they’re worthless. A bias is a lean. A structured view of which direction has the weight of evidence behind it, formed before price does anything, specific enough that you could explain it out loud and have someone else follow the reasoning.
Without a bias, a setup is just a pattern. It might work. It might not. You have no framework for judging it because you haven’t placed it inside a bigger picture first. You’re not trading a read on the market. You’re trading a shape on a chart.
There’s a difference. It took me a while to feel it.
Howard Marks, who founded Oaktree Capital and has written some of the clearest thinking on markets I’ve found, calls this the difference between first-level and second-level thinking. First level says the setup looks good. Buy it. Second level asks: given what everyone else already knows and how they’re already positioned, does this setup actually have an edge? Most traders operate entirely at the first level. It feels like thinking. It produces the sensation of having a view. It just doesn’t require the work that actually generates one.
The chart gives you first-level information. The bias is how you do the second-level work before the chart ever opens.
Decisions versus outcomes
Before getting into the questions there’s a distinction worth making that changes how you think about all of this.
Annie Duke, one of the best poker players in the world before she became a researcher on decision-making, wrote something that reframed the whole problem for me. A good decision and a good outcome are not the same thing. You can make the right call and lose. You can make the wrong call and win. The variance in any probabilistic game guarantees this. Over any short sample the outcomes will mislead you about the quality of the decisions producing them.
What you control is the probability estimation going in. Forming a bias before you look at price is exactly that. You’re not trying to be right. You’re trying to be calibrated. To weight the outcomes correctly based on what you know rather than treating all possibilities as equally likely because you didn’t do the work to distinguish them.
Daniel Kahneman, whose research on human judgment earned him a Nobel Prize, describes two modes of thinking. System 1 is fast, automatic, intuitive. System 2 is slow, deliberate, effortful. Opening a chart and reacting to a pattern is System 1. It requires almost no cognitive effort. Building a bias is System 2. It’s slow. It requires sitting with uncomfortable uncertainty instead of resolving it quickly into a trade.
Most traders stay in System 1 because it feels like thinking. The bias forces System 2 before System 1 takes over.
Start bigger than the chart
Before any of the questions below there’s one that sits above all of them.
What inning are we in.
Markets move in cycles. Economic cycles, credit cycles, sentiment cycles, rate cycles. Early cycle looks dramatically different from late cycle. A market where institutional money is just starting to rotate into risk, where positioning is light and the crowd is skeptical, looks nothing like one where everyone is already positioned, leverage is elevated, and the consensus is optimistic.
The setup on the chart might be identical in both environments. The probability behind it isn’t.
Early innings mean the asymmetry is wide. The crowd hasn’t arrived yet. There’s room to build a position and be patient. Late innings mean the crowd is already there. The trade that looks obvious is already priced in. The risk-reward has compressed toward the point where you’re accepting a lot of risk for limited remaining upside.
Who’s on the other side of this trade and why. How crowded is the consensus. Where’s the asymmetry. These questions don’t live on the chart. They live in the bigger picture. And the bigger picture is where a real bias starts.
The questions that complete it
The story underneath the price
Every market has a narrative driving it. Not the headline. The actual dynamic underneath.
Is this a risk-on environment. Institutions rotating into equities, cyclicals leading, spreads tightening. Or is something quietly shifting. Rallies getting sold. Defensive names holding bid. Hedges being added without much fanfare.
The story tells you which direction has the path of least resistance. Trades with the story have room to be early. Trades against it need a specific reason and tighter execution. Finding it doesn’t require exotic data. It requires stopping before you touch the chart and asking honestly: what is this market actually doing right now, and why.
Where the risk is and how large
This is different from the story. The story is the environment. The risk is what could interrupt it.
A Fed decision changes how much overnight exposure makes sense. A geopolitical situation with two very different binary outcomes changes how you size. A data print that could swing sentiment in either direction means your stops need to reflect that range. Not the quiet range from the prior week.
Most traders treat risk as background anxiety. They know it’s there but they don’t price it into the position before getting in. Small knowable risk means you can size up and be patient. Large binary risk means smaller size and wider awareness. Same setup on the chart. Different trade entirely.
How others are positioned
You’re not trading price. You’re trading against other participants. Where they’re positioned determines how much room a move has before it stalls. Whether the crowd is with you or against you.
If institutions have been building longs for two weeks and you’re looking to fade a level on Tuesday, you need a real reason. The weight of positioning is against you. If the crowd is clearly offsides, even a mediocre setup in the other direction gets interesting.
You’re not looking for precision. Sector flows, how defensive positioning has shifted, whether options markets suggest hedging or leaning. Just a directional read on who’s holding what and whether there’s room to run.
The tempo of price action
Price has rhythm. A slow deliberate grind is a different environment from a volatile news-driven wide-range session.
Both can go higher. But they require different approaches. One rewards patience at levels. The other rewards momentum entries and quick exits. Fighting the tempo costs money. Not because your levels are wrong. Because you’re playing the wrong game in the right market.
The calendar and seasonal context
Catalysts matter not because they always move the market but because they change the risk profile of holding through them.
Fed days, payrolls, inflation prints, major earnings. These aren’t events to fear. They’re decision points. If your bias is bullish and payrolls are Friday, what does a strong print do to the thesis. What does a weak print do. Know both answers before Thursday’s close. Not Friday morning when the number is already out.
The calendar is also bigger than the week in front of you. Seasonal patterns are documented, structural, and almost universally ignored in short-term trading.
September is historically the weakest calendar month for US equities, averaging a loss going back nearly a century. Not coincidence. It’s when institutional managers return from summer, reassess portfolios, and reduce risk heading into year-end. November through April is historically the strongest six-month window. The old sell in May observation is a simplified version of a real pattern that has persisted across multiple market generations.
Pre-FOMC drift is documented in Federal Reserve research. Equity markets have historically drifted upward in the 24 hours before Fed announcements. Not random. Dealers and institutions positioning for the event produce measurable pre-event price behavior. Options expiration weeks have their own gravitational pull as dealers hedge exposure near large strikes. End of quarter window dressing produces predictable flows in the final days of each quarter.
None of these override a strong enough narrative or catalyst. But they’re the weather conditions the trade has to fly in. A bullish bias with a seasonal tailwind is a different trade from the same bullish bias flying into a headwind.
Sunday you versus Monday you
This took me the longest to actually build into the process.
The person who does this work on Sunday morning and the person sitting at a desk watching price on Monday afternoon are different cognitive agents.
Sunday you is rested. The market isn’t doing anything urgent. There’s no open position creating emotional pressure. The System 2 thinking Kahneman describes is actually available because there’s nothing demanding System 1 respond right now.
Monday you is watching ticks. There’s a position on or a setup developing. The limbic system is engaged. Decision fatigue starts accumulating from the open. The deliberate reasoning that produced a clean bias on Sunday is harder to access.
This is why writing the bias down matters. Not because you’ll forget it. Because Monday you needs to be checking against Sunday you’s work rather than starting from scratch under pressure.
The written bias is the anchor. It doesn’t eliminate the Monday problems. It gives Monday you a reference point built by the version of yourself with full cognitive resources available.
Why this takes an hour
Reading all of those questions it still sounds manageable.
It isn’t. Not done properly.
Pulling positioning data takes time. Checking sector flows takes time. Reading how options markets are set up, reviewing the calendar, thinking through how each event interacts with the thesis, checking where we are in the seasonal calendar, sitting with the prior week’s price action and forming an honest read on the tempo. Done properly that’s close to an hour of real work before you write a single word about the week ahead.
Most traders don’t have that hour on Sunday morning. Or they have it and spend it watching someone else’s recap instead. Either way Monday arrives and they’re rebuilding their thesis in real time while price is already moving. Always one step behind. Reacting when they should already know what they’re looking for.
I spent years in that mode. It’s expensive. Not just financially. It’s mentally exhausting in a way that compounds over time. Every week feeling reactive instead of prepared.
The weekly plan I publish every Sunday is that hour done before Monday open. Cycle read, positioning check, seasonal context, asymmetry map, levels, three scenarios. If you don’t have the time to build it yourself that’s what it’s there for.
But whether you subscribe or not, the habit is worth building on your own first. Pick one week. Before Monday open, start with the inning. Then answer the questions. Write them down. Watch how differently the week feels when Sunday you has already done the work for Monday you.
The setup is what you find after the bias is formed.
Not before.
The short version
Before you open the chart, ask this first.
What inning are we in. How crowded is the consensus. Where’s the asymmetry.
Then ask these.
What’s the story. Where’s the risk and how large. How are others positioned. What’s the tempo. What’s the seasonal context and what’s on the calendar.
Answer those first.
Then open the chart.
Next Thursday — Post 2: The Hardest Part Is Waiting. Why patience isn’t a character trait. It’s a neurological problem. And why that distinction matters for how you actually solve it.
If this was useful, forward it to someone who trades or invests. Questions, just reply.
LobWedge Research provides market analysis and educational content only. Nothing here is investment advice. All trading involves risk. Do your own research and consult a licensed advisor before making any decisions. The author may hold positions in securities mentioned.
Even tho I don't miss spending 2.5-3hrs in the car each day driving to and from the office, it was a great time to reflect and think about the day and my process
The difference between a clean Sunday thought and process vs a market influenced Monday thought and process really struck a chord with me! This is great, thanks for writing.