Holding losers, cutting winners
The disposition effect quietly turns good strategies into losing ones.
People tend to close winners quickly to lock in the good feeling, and hold losers hoping they come back. Researchers call this the disposition effect. In trading it shrinks wins and stretches losses.
How it shows up
- Losing trades stay open much longer than winners.
- Average loss is bigger than average win, even with a decent win rate.
- Stops get moved further away when price comes close.
Counter it
- Set stop and target before you enter and leave them.
- Use partial exits or a trailing stop by rule, not by feeling.
- Replay your trades to see where exits really should have been.
Trade Replay shows the best price reached while your trade was open, so you can see how much you left on the table.