Glossary › disposition effect

Trading glossary · psychology

disposition effect

The habit of selling winning trades too early and holding losing ones too long, hoping they come back.

The fuller meaning

The tendency to take gains quickly and hold losses, found clearly in a study of 10,000 brokerage accounts. Over many trades it shrinks the average win and grows the average loss; stops, targets and trailing-stop rules decided in advance work against it.

disposition effect.

Related words

anchoring · boredom trading · chasing · cognitive bias · confirmation bias · consistency · cool-down rule · discipline · emotion · entry rule