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Spencer Li

Regret Aversion Bias – Would You Rather Be Right, or Avoid Being Wrong?

Regret Aversion Bias in Trading: What It Is and How to Beat It

Last updated: 3 July 2026 · By Spencer Li, CFTe

Regret aversion bias is the tendency to avoid making a decision because you fear it will look wrong in hindsight, so you would rather do nothing than risk the pain of regret. In trading, it shows up in three ways: you hold a losing position too long because closing it means admitting you were wrong, you hesitate to enter after a string of losses when you should be acting, and you refuse to sell a winner on bad signals because you cannot stand the thought of it running higher without you. It is a fear of feeling bad later, not a real read of the market. The way out is not a clever trick. It is confidence in a tested method, so that any single trade, win or lose, is just one repeat of a process you trust. Discipline and consistency are what dissolve the regret.

Let me break down where this bias hides and how to trade around it.

What is regret aversion bias?

Regret aversion is a cognitive bias (a built-in thinking error) where you avoid a decisive action because you are trying to forestall the pain of regret that comes with a poor choice. The catch is that “doing nothing” is also a choice, and it carries its own regret. You are not escaping the decision. You are just hiding from one half of it.

In everyday life this looks harmless. You keep the same phone plan, the same gym you never use, the same job, because changing and being wrong feels worse than staying and being stuck. In trading, the same instinct quietly costs you money.

How regret aversion shows up in traders

There are three classic patterns, and most traders run all three without noticing.

You hold losers too long. Closing a losing position means realising the loss and admitting the entry was a mistake. So you hold, hoping it comes back, because as long as it is open you have not officially been wrong. The loss grows while you protect your ego.

You freeze after a losing streak. After a few losses, the instinct is to retreat, conserve, and lick your wounds. That feels safe. But the market does not know you are on a streak, and the best setups often come right after the worst stretch. Regret aversion makes you hesitate most at the exact moments that merit acting.

You cling to winners past the exit. This one is sneaky because it wears the mask of greed. You get a clear negative signal on a profitable position, but you will not sell, because you are terrified the stock soars even higher the moment you are out. The regret you are dodging is not “I lost money.” It is “I left money on the table.” So you give the profit back instead.

Errors of commission vs errors of omission

Regret-averse traders are trying to avoid two different kinds of mistake, and the second one is the one almost nobody accounts for.

What it isExample in tradingThe regret you fear
Error of commissionA misguided action you tookYou entered a bad trade and lost“I should not have done that”
Error of omissionA misguided inaction, an opportunity skippedYou sat out a setup that ran without you“I should have done that”

Here is the trap. We feel the pain of commission errors loudly, because there is a clear action to blame. We barely register omission errors, because nothing happened, so there is nothing to point at. That asymmetry is exactly why regret aversion pushes you toward inaction. Inaction feels free, even when it is quietly the more expensive mistake.

What about herding behaviour?

Herding is regret aversion in a crowd. When you follow the mass consensus, you are not just hoping the crowd is right. You are buying insurance against future regret, because if everyone is wrong together, the responsibility is diffused and you do not have to feel singled out for the bad call.

That is comforting and it is dangerous. The whole point of having an edge is doing something the crowd is not. If your only reason for a trade is that everyone else is in it, you have outsourced your decision to the very people you are supposed to be trading against.

What is the best solution for regret aversion?

The way out is to have genuine confidence in your method and your skill, so that a string of losses does not shake you off your process. When you know that in the long run you will recoup those losses and turn a profit by catching the big moves, a single loss stops feeling like a verdict on you. It is just one sample in a system you trust. The key here is discipline and consistency.

This is why a process beats a feeling. A backtested, written rule set does not get embarrassed. It does not remember yesterday’s loss. It just tells you what the setup is worth and whether today’s chart qualifies. A scanner can flag the setup for you in a second, but it will not give you the discipline to take the trade after three losses in a row, or to close a winner on a sell signal. That part, sitting with the discomfort and executing anyway, is the human edge. Discipline is one of the Five Edges no tool can trade for you.

Even the man who built modern portfolio theory admitted he managed his own money by managing his regret:

“I visualized my grief if the stock market went way up and I wasn’t in it, or if it went way down and I was completely in it. My intention was to minimize my future regret, so I split my retirement plan contributions 50/50 between bonds and equities.”
, Harry Markowitz, father of Modern Portfolio Theory

Personally, I read that quote as permission, not a flaw. Markowitz did not pretend he was a robot. He acknowledged the regret was real, then built a rule (a fixed 50/50 split) so the feeling could not drive his decisions in the moment. That is the move. You do not delete the emotion. You build a process that runs regardless of it.

How to apply this to your own trading

A few practical handles:

  • Pre-decide your exits. If your stop and your sell signal are written before you enter, closing a losing or winning position is just following the plan, not admitting a mistake. The ego never enters the room.
  • Track omission, not just commission. Keep a note of the qualifying setups you skipped out of fear. When you see how much those “safe” non-trades cost, the asymmetry corrects itself.
  • Make the streak irrelevant. Size every trade the same way relative to your account, so loss number six is just as routine as loss number one. The streak only has power if your sizing reacts to it.
  • Trade your system, not the crowd. If you cannot explain the entry without “everyone is in this,” it is not your trade.

If you want the full picture of how the mind sabotages trades, read the pillar: The Complete Guide to Investing and Trading Psychology.

FAQ

What is regret aversion bias in simple terms?
Regret aversion is avoiding a decision because you fear it will look wrong later, so you do nothing instead. In trading it makes you hold losers too long, freeze after losses, and refuse to sell winners on bad signals, all to dodge the pain of regret.

How does regret aversion affect traders?
It pushes traders toward inaction. They hold losing positions to avoid admitting the loss, hesitate to enter after a losing streak, and cling to profitable positions past the exit signal because they cannot stand the idea of the stock running higher without them.

What is the difference between an error of commission and an error of omission?
An error of commission is a misguided action you took, like entering a bad trade. An error of omission is a misguided inaction, like skipping a good setup that then ran without you. We feel commission errors more sharply, which is why regret aversion biases us toward doing nothing.

Is herding behaviour caused by regret aversion?
Largely, yes. Following the crowd diffuses responsibility, so if the consensus is wrong, you do not feel singled out for the bad call. That makes herding a way of buying insurance against future regret, at the cost of any real edge.

How do you overcome regret aversion in trading?
Build genuine confidence in a tested method and trade it with discipline and consistency. When you trust the process over the long run, a single loss stops feeling like a personal verdict, and pre-decided exits turn closing a trade into following a plan rather than admitting a mistake.

So, which version of regret aversion do you catch yourself in most, the held loser, the post-streak freeze, or the winner you would not let go? Naming it is the first step to trading around it.

Want the system behind the discipline? Grab the free 15-Minute Swing Trading Starter Kit. It’s the exact routine I use to scan once a day and trade any market in 15 minutes, so the decisions are made before the emotion shows up.

About the author. Spencer Li is the founder of Synapse Trading and a Certified Financial Technician (CFTe) with 15 years of trading across stocks, forex, crypto, commodities, and bonds. His trade log is public, 404 trades, losses left in. He teaches low-risk swing trading in 15 minutes a day, one system for any market.

Education, not financial advice. Synapse Trading is not licensed by MAS to advise on investment products. Trading carries risk of loss; past performance is not indicative of future results.

Related

The Complete Guide to Investing and Trading Psychology (pillar) · Loss aversion bias · Disposition effect · Herding behaviour in trading

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Spencer Li

Hindsight Bias – When People Say “I Knew It All Along!”

Hindsight Bias in Trading: Why “I Knew It All Along” Is Costing You Money

Last updated: 3 July 2026 · By Spencer Li, CFTe

Hindsight bias is the tendency to believe, after an event has happened, that you saw it coming all along, even when you did not. In trading, it quietly rewrites your memory: after a win you remember being certain, and after a loss you forget you ever placed the trade. Both versions are false, and both stop you from learning. The bias matters because it makes you overrate your own foresight, underestimate how uncertain the market actually was, and take bigger risks on the back of skill you do not really have. The fix is not willpower. It is a written record. Keep a trading journal that logs your reasoning and your emotions before the outcome is known, so your past self can correct your present memory. That single habit is the most reliable defense against the “I knew it all along” trap.

Here is how the bias works, why it is so damaging for traders specifically, and exactly how to beat it.

What is hindsight bias?

Hindsight bias is the impulse that insists: “I knew it all along.” Once an event has happened, people affected by it perceive that the event was predictable, even when it was not.

Why does the mind do this? Because the outcome that actually happened is easy to picture, while the infinite array of outcomes that could have happened but did not is almost impossible to hold in your head. The real result crowds out all the alternatives. So people overestimate the accuracy of their own predictions.

To be clear, this does not mean people cannot make accurate predictions. It means a person may simply believe they made an accurate prediction, after the fact, when they did not.

Why hindsight bias is dangerous for traders

The damage runs deeper than a bruised ego. A trader subject to hindsight bias assumes the outcome they observed was the only outcome that was ever possible. So they underestimate the uncertainty that existed before the event, and they underrate all the results that could have materialized but did not.

That distortion poisons your future forecasting in two specific ways.

After a winning trade, hindsight-biased traders rewrite their own memories to make the win look predictable, as if they always knew. Over time this inspires excessive risk-taking, because they come to believe they have superior predictive ability. They size up. They skip the checklist. They stop respecting the role of luck.

After a losing trade, the same traders “rewrite history” the other way. They block out the memory of the bad call to ease the embarrassment. This is a form of self-deception, close cousin to cognitive dissonance (the discomfort of holding two conflicting beliefs at once). It prevents them from ever learning from the mistake, because in their memory the mistake never quite happened.

There is a compounding problem here too. Hindsight bias is linked to anchoring (the tendency to lock onto an early reference point and judge everything against it). Because anchoring makes it hard to reconstruct an unbiased state of mind, and hindsight bias makes you exaggerate the quality of your past foresight, the two reinforce each other. You end up confidently wrong, and convinced you were right all along.

The single biggest cost: hindsight bias prevents you from learning from your mistakes. And in trading, learning from mistakes is the entire game.

Win or loss: the two faces of the bias

The bias does not feel the same after a win as it does after a loss, but it does the same damage either way. Here is the pattern, side by side.

After a winning tradeAfter a losing trade
The memory distortion“I knew that was going to work”“I never really committed to that one”
What gets rewrittenThe uncertainty you felt before entryThe fact that you took the trade at all
The hidden bias at workOverconfidence in your foresightSelf-deception, cognitive-dissonance relief
The downstream costExcessive risk-taking, you size up on false skillNo learning, you repeat the same mistake
What the journal would showYou were far less certain than you rememberYou did place it, here is exactly why

The journal column is the point. In both rows, a written record taken before the outcome corrects a memory that has since been edited.

How do you overcome hindsight bias in trading?

As with most biases, the first step is unglamorous: understand and admit that you are susceptible. You are not the exception. Nobody is.

The practical fix is a trading journal. Use it to record, for every trade:

  • Your analysis and the actual reasons you took the trade.
  • Your thought process at the moment of entry.
  • The emotional swings that went with the whole trade, from entry to exit.

The key is the timing. You write it down before you know how the trade ends. That way, when you look back after the event, the journal holds your real, unedited state of mind. It will not let you pretend you were certain when you were anxious, or pretend you never took the trade you would rather forget. It prevents the disillusioned, after-the-fact thinking that the bias depends on.

The behavioral-finance writer James Montier put it as plainly as anyone:

“You didn’t know it all along; you just think you did.”

That sentence is worth pinning above your desk.

Where the human edge comes in

A trading bot will never suffer hindsight bias. It does not have a memory to flatter or an ego to protect. But it also will not catch yours. No algorithm can tell you that the confident story you are telling about last week’s winner is a fiction your brain wrote after the fact. That correction takes honest self-review, a written record, and the discipline to read it back when it stings. The pattern recognition is getting cheap. The self-honesty is not, and it remains the part of the edge no machine can trade for you.

FAQ

What is hindsight bias in simple terms?
Hindsight bias is the tendency to believe an event was predictable after it has already happened, even when there was no way to know the outcome in advance. It is the “I knew it all along” feeling, and it usually is not true.

How does hindsight bias affect traders specifically?
It makes traders rewrite their memories. After wins they remember being certain, which breeds overconfidence and excessive risk-taking. After losses they block out the bad trade, which prevents them from learning. Both distortions damage future decision-making.

What is the difference between hindsight bias and anchoring?
Hindsight bias makes you overrate your past foresight after an outcome is known. Anchoring makes you fix on an early reference point and judge everything against it. They are linked, because anchoring makes it harder to recover an unbiased view, which feeds the hindsight distortion.

How do I overcome hindsight bias when trading?
Keep a trading journal. Record your analysis, your reasoning, and your emotions for every trade before you know the result. Reading it back later corrects the memory your brain has since edited, so you can actually learn from each trade.

Is hindsight bias the same as overconfidence?
No, but they feed each other. Hindsight bias makes you think you predicted past events accurately. That false track record then fuels overconfidence in your future predictions, which is when the position sizing gets dangerous.

So, which version of the bias do you fall into more often, rewriting your wins or burying your losses? Be honest with yourself, then go check your journal.

If you want to go deeper on the mental traps that quietly drain trading accounts, read the pillar: The Complete Guide to Investing and Trading Psychology.

Want a system that takes the emotion out of the decision? Grab the free 15-Minute Swing Trading Starter Kit. It’s the exact once-a-day routine I use to scan, journal, and trade any market in 15 minutes, with the rules written down so my future self cannot rewrite them.

About the author. Spencer Li is the founder of Synapse Trading and a Certified Financial Technician (CFTe) with 15 years of trading across stocks, forex, crypto, commodities, and bonds. His trade log is public, 404 trades, losses left in. He teaches low-risk swing trading in 15 minutes a day, one system for any market.

Education, not financial advice. Synapse Trading is not licensed by MAS to advise on investment products. Trading carries risk of loss; past performance is not indicative of future results.

Related

The Complete Guide to Investing and Trading Psychology (pillar) · Anchoring bias in trading · How to keep a trading journal · Cognitive dissonance in trading

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Spencer Li

Loss Aversion Bias – Why a Loss Has Twice the Psychological Impact

trading loss

Loss Aversion Bias in Trading: Why Losing Hurts Twice as Much (and How to Fix It)

Last updated: 3 July 2026 · By Spencer Li, CFTe

Loss aversion bias is the tendency to feel the pain of a loss about twice as strongly as the pleasure of an equal gain, so we go out of our way to avoid losses rather than to chase profits. It was first described by Daniel Kahneman and Amos Tversky in 1979 as part of prospect theory. For traders, it shows up in two costly habits: holding losers far too long, hoping they come back, and cutting winners far too early, scared the profit will evaporate. Both habits do the same damage. They make your losses big and your wins small, which is the exact opposite of what you need to make money. The fix is not willpower. It is a preset stop-loss, decided before you enter, that takes the decision out of your hands when emotion is loudest.

Here is what loss aversion is, how it sabotages real trades, and the one rule that defuses it.

What is loss aversion bias?

Loss aversion bias is a finding from behavioral finance (the study of how psychology drives money decisions) that says the possibility of a loss is, on average, about twice as powerful a motivator as the possibility of a gain of the same size.

Kahneman and Tversky developed it in 1979 as part of the original prospect theory. The short version: people would rather avoid a loss than capture an equal-sized gain. Losing 100 dollars stings more than winning 100 dollars pleases. So we make lopsided choices to dodge the sting, even when those choices cost us money over time.

That asymmetry is normal. It probably kept our ancestors alive. The problem is that markets punish it.

How loss aversion sabotages your trades

In trading, the bias leaks out in two directions, and both of them hurt.

First, it stops you cutting losers. Loss aversion can keep you holding a losing trade long after the reason for the trade is gone, because closing it means admitting the loss is real. Industry veterans have a name for this: “get-even-itis.” You wait and wait for the trade to climb back to your entry, instead of cutting it and moving on to a better one. It is dangerous because the best response to a loss is to take it quickly and free yourself up. The longer you wait, the bigger the hole.

Second, it makes you cut winners too early. The same fear of loss makes you fixate on protecting a profit the moment one appears. As soon as a trade is green, the loss-averse part of your brain panics that the market will reverse and snatch the gain back, so you grab the small profit and run. The problem is that exiting early to protect a gain caps your upside. You never catch the big moves, the ones that actually pay for all the small losses.

Put the two together and you get the trader’s nightmare: small wins, big losses. That math does not survive contact with a real account.

Loss aversion vs disciplined trading, side by side

The loss-averse traderThe disciplined trader
A trade goes against themHolds and hopes (“get-even-itis”), waiting for a reboundExits at the preset stop, no debate
A trade goes in their favourGrabs the small profit early, scared it reversesLets the winner run to a planned target
Where the decision is madeIn the moment, with emotion running hotBefore entry, when the mind is calm
The shape of the resultsBig losses, small winsSmall losses, big wins
State of mind for the next tradeTense, anchored to the last positionNeutral, capital freed up, ready

The left column feels safer in the moment. The right column is what actually compounds.

What is the best solution for loss aversion in trading?

The best solution is a preset stop-loss, the price you decide in advance to exit a losing trade.

If you are disciplined and you set that stop point before you enter, you simply exit when the price is breached. Personally, I think this is the single most underrated tool a new trader has, because of what it removes rather than what it adds. It removes the blind hope of a rebound. There is no “maybe one more day.” The decision was already made when you were calm, not now when you are scared.

It does two more useful things. By squaring off the position, it resets you to a neutral frame of mind for the next trade, instead of staying emotionally hooked to the loser. And it frees up the capital that was trapped in a dead trade, so you can put it into a better one.

Do note that the stop only works if you respect it. A stop-loss you keep moving lower “just this once” is not a stop-loss. It is a wish.

As Ralph Waldo Emerson put it: “Win as though you were used to it, lose as if you enjoyed it for a change.”

Where the human edge comes in

Any platform can place a stop-loss order for you in one click. That part is free. What no tool can do is make you honour it when the trade is 2 percent underwater and every instinct is screaming that it will bounce back. The bias is human, so the discipline has to be human too. A system can hold the line; only you can decide not to override it. That is the second of the Five Edges, discipline and sizing, and it is the one loss aversion attacks hardest.

FAQ

What is loss aversion bias in simple terms?
It is the tendency to feel a loss about twice as strongly as an equal gain, so we work harder to avoid losses than to capture profits. Kahneman and Tversky described it in 1979 as part of prospect theory.

How does loss aversion affect traders?
It makes traders hold losing trades too long, hoping for a rebound (“get-even-itis”), and close winning trades too early to protect the profit. The result is big losses and small wins.

What is “get-even-itis”?
It is an industry nickname for waiting too long for a losing trade to climb back to your entry price, instead of cutting the loss and moving on. It is a direct symptom of loss aversion.

How do I overcome loss aversion in trading?
Set a stop-loss before you enter the trade and exit when it is hit, with no exceptions. Deciding in advance, while you are calm, removes the in-the-moment emotion that drives the bias.

Is loss aversion the same as risk aversion?
No. Risk aversion is a general preference for certainty. Loss aversion is the specific finding that losses hurt roughly twice as much as equal gains feel good, which is why it leads to such lopsided trading decisions.

Loss aversion is wired into all of us. You will not delete it. The goal is to build a routine that makes the bias irrelevant, by deciding your exits before the emotion arrives.

For the full picture of how psychology drives your results, read the pillar: The Complete Guide to Investing and Trading Psychology.

Want a routine that takes the emotion out of it? Grab the free 15-Minute Swing Trading Starter Kit. It is the exact once-a-day process I use to scan, set my stops in advance, and trade any market in 15 minutes.

About the author. Spencer Li is the founder of Synapse Trading and a Certified Financial Technician (CFTe) with 15 years of trading across stocks, forex, crypto, commodities, and bonds. His trade log is public, 404 trades, losses left in. He teaches low-risk swing trading in 15 minutes a day, one system for any market.

Education, not financial advice. Synapse Trading is not licensed by MAS to advise on investment products. Trading carries risk of loss; past performance is not indicative of future results.

Related

The Complete Guide to Investing and Trading Psychology (pillar) · How to use a stop-loss · Cut your losses and let your profits run · Common cognitive biases in trading

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Spencer Li

Confirmation Bias – I See Only What I Want to See!

What Is Confirmation Bias in Trading (and How to Beat It)?

Last updated: 2026-06-14 · By Spencer Li, CFTe

Confirmation bias is the tendency to notice and trust information that supports what you already believe, while ignoring or explaining away anything that contradicts it. In trading, it is dangerous because a trader who has already decided “this is going up” will hunt for the indicators, news, and chart reads that agree, and quietly skip the ones that do not. The fix is not a smarter indicator. It is a habit of forced objectivity: record every signal a method gives you, the losses as well as the wins, and judge the method on the full record instead of the flattering half. If you only remember the trades that proved you right, you are not testing your edge. You are decorating your opinion.

Here is where the bias comes from, the three places it bites traders, and the one record-keeping habit that beats it.

What is confirmation bias?

Confirmation bias is a form of selective perception (your mind quietly filtering what you take in). It emphasises ideas that confirm your beliefs and devalues whatever contradicts them. You can think of it as a selection bias in how you collect evidence: you go looking for the proof that fits, and that is mostly what you find.

A simple everyday example. Say you believe more red cars drive past your house in summer than at any other time of year. That belief might be true. But it might just be confirmation bias: in summer you notice the red cars and overlook them the rest of the year, and over time that one-sided noticing hardens into a “fact” you would defend. You never actually counted.

Put another way, confirmation bias is our all-too-natural ability to convince ourselves of whatever we want to believe. We attach undue weight to events that corroborate the outcome we were hoping for, and we play down whatever contrary evidence shows up.

Why is confirmation bias dangerous for traders?

Because trading rewards being right and punishes being stubborn, and confirmation bias makes you feel right while you are being stubborn. A trader who is entrenched in an opinion will actively seek out the information that confirms it and ignore the information that does not. The feeling of conviction goes up. The quality of the decision goes down. Here are the three places it does the most damage.

Where it bitesWhat it looks likeThe fix
Indicator cherry-pickingYou stack indicators until enough of them “agree” with the trade you already want, and you discount the ones flashing the opposite signalDecide your indicators and rules before the trade, then read all of them, including the ones you do not like
Gurus and marketing gimmicksA “sure-win” guru looks like a genius because you celebrate his hits and forget his misses (and so does he)Demand the full track record, every call, scored. No full log, no credibility
Your own resultsYou remember the trades that proved you right and let the losers fade, so a mediocre method feels like a great oneLog every signal the method gives, win or lose, and grade it on the whole set

The indicator trap

This bias is especially nasty for traders who lean heavily on indicators, because many indicators give conflicting signals at the same time. If you have already chosen a direction, it is not hard to find the two or three indicators that support it and treat the rest as noise. You are not analysing the market anymore. You are assembling a defence for a verdict you already reached.

The guru trap

The second hazard is marketing gimmicks and market gurus, the ones who make a lot of (often absurd) forecasts based on a “sure-win” method. To a newer trader they can look like they have a very high hit rate. Mostly that is because people want to believe the guru, so they celebrate his correct predictions and conveniently ignore the less-accurate or completely-off ones. The guru rarely keeps the receipts, and neither does the audience. Same bias, pointed outward.

What is the best solution for confirmation bias in trading?

Objectivity. You have to be willing to see both sides of the coin instead of only the side you like.

The most practical version of that is simple to say and hard to do: if you want to test whether a method works, record every single signal it produces, the gains and the losses, and not just the instances where it worked. The losers are not an embarrassment to hide. They are half the data. A method judged only on its winners is not a tested method. It is a story.

This is exactly why my own trade log is public, all of it, losses left in. Not because the losing trades are flattering, but because a record that quietly drops them tells you nothing true about the edge.

As Francis Bacon put it four hundred years ago:

“It is the peculiar and perpetual error of the human understanding to be more moved and excited by affirmatives than by negatives.”

That is confirmation bias, named long before anyone called it that.

Where the human edge comes in

An indicator, or an AI scanner, will happily generate signals all day. It has no opinion to defend, but it also will not stop you from defending yours. The thing software cannot do for you is force the awkward question: “What would prove me wrong right now, and have I actually looked for it?” Catching your own bias, scoring your method honestly, and sitting with a losing record instead of deleting it is psychology and accountability work. That is two of the Five Edges no tool will trade for you.

FAQ

What is confirmation bias in simple terms?
Confirmation bias is the habit of paying attention to evidence that agrees with what you already believe and ignoring evidence that does not. Over time, one-sided noticing turns a hunch into a “fact” you never actually tested.

How does confirmation bias affect traders?
It makes traders seek out indicators, news, and chart reads that support a position they have already decided on, while discounting the warning signs. It also makes “sure-win” gurus look more accurate than they are, because their hits get remembered and their misses get forgotten.

How do I overcome confirmation bias in trading?
Record every signal your method produces, wins and losses, and judge the method on the full record. Define your rules before the trade, read every indicator (not just the agreeable ones), and treat any guru with no complete, scored track record as unproven.

Is confirmation bias the same as a self-fulfilling prophecy?
No. A self-fulfilling prophecy is when believing something helps make it happen. Confirmation bias is when you only notice the evidence that says it already happened, whether or not it did.

Why should I keep a trading journal that includes my losses?
Because a journal that quietly drops the losers tells you nothing honest about your edge. The losing trades are half the data. Logging every signal, win or lose, is the single most effective defence against fooling yourself.

So, the next time a trade feels obviously right, ask yourself one question: am I reading the market, or am I collecting proof for a verdict I already reached? That small pause is most of the skill.

For the full picture on how the mind works against traders, read the pillar: The Complete Guide to Trading and Investing Psychology.

Want the system that keeps the bias out of the trade? Grab the free 15-Minute Swing Trading Starter Kit. It’s the exact routine I use to scan once a day and trade any market in 15 minutes, rules first, opinion second.

About the author. Spencer Li is the founder of Synapse Trading and a Certified Financial Technician (CFTe) with 15 years of trading across stocks, forex, crypto, commodities, and bonds. His trade log is public, 404 trades, losses left in. He teaches low-risk swing trading in 15 minutes a day, one system for any market.

Education, not financial advice. Synapse Trading is not licensed by MAS to advise on investment products. Trading carries risk of loss; past performance is not indicative of future results.

Related

The Complete Guide to Trading and Investing Psychology (pillar) · Loss aversion and how it hurts traders · Why keeping a trading journal matters · Recency bias in trading

0 Comments/by
Spencer Li

Endowment Bias – Do You Really “Own” a Trading Position?

Endowment Bias in Trading: Why You Hold Losing Positions Too Long

Last updated: 3 July 2026 · By Spencer Li, CFTe

Endowment bias (a behavioral-finance term for valuing something more simply because you own it) is what makes traders hold losing positions far longer than they should. Standard economics says the price you would pay to buy an asset should equal the price you would accept to sell it. In real life the two are not equal. Once you own a position, you anchor to it, you feel the loss of giving it up more sharply than the gain of holding something better, and so you sit on the loser instead of rotating into a stronger trade. The fix is a single question you ask yourself out loud: “If I held no position right now, would I open this exact trade today?” If the answer is no, you are not holding the trade because it is good. You are holding it because it is yours. That is the bias talking, and it is costing you the better trade you could be in instead.

Here is where the bias comes from, how it shows up at the screen, and the one habit that breaks it.

What is endowment bias?

Endowment bias is the tendency to put a higher value on an object once you own it than you would if you did not own it yet.

The cleanest way to see it: imagine two versions of you. One owns a position and is deciding whether to keep it. The other owns nothing and is deciding whether to buy that same position fresh. Standard economic theory says both versions should value it identically. Your willingness to pay for it (as the buyer) should equal your willingness to accept for it (as the seller). In practice the owner demands more to let it go than the non-owner would pay to get it. Same asset, two different prices, and the only thing that changed is who is holding it.

The mechanism underneath is loss aversion. Giving up something already in your “endowment” (your set of holdings) registers as a loss, and losses hurt more than equivalent gains feel good. So the position gets a premium in your head that has nothing to do with its actual prospects.

How endowment bias shows up in trading

This is the bias that keeps you married to a losing position.

You bought the stock. It dropped. There is a better setup right in front of you, with higher expected upside. The rational move is to close the loser and rotate into the better trade. But you do not, because the position feels like yours. Selling it means crystallising the loss and admitting the entry was wrong, and that registers as giving something up. So you freeze.

That freeze has a name: decision paralysis. You place an irrational premium on the price you would need to be paid to let the position go, and that premium is high enough that you just hold. The market does not care that the position is yours. It will keep moving with or without your attachment to it.

Here is the same idea in a table, which is the fastest way to catch yourself doing it:

The owner (you, holding it)The fresh buyer (you, with no position)
What you feel“This is mine. Selling means I lose.”“Is this the best place for my capital right now?”
Reference pointYour entry priceThe current setup on its own merits
What you weighThe pain of crystallising the lossThe upside versus other available trades
Likely actionHold the loser, hope it comes backBuy only if it is genuinely the best option
Whose decision is cleanerDistorted by ownershipDistorted by nothing

The fresh buyer is making the better decision every time. The trick is to force yourself into the fresh buyer’s seat while you are actually the owner.

What is the best way to break free from endowment bias?

Ask yourself one question: “If I did not have any positions at the moment, would I still choose to take the position I am currently holding?”

If you answered no, then you are holding for the wrong reason, and you owe yourself an honest look at why you are still in it.

That question works because it strips out the ownership. It puts you back in the fresh buyer’s seat. You are no longer defending a past entry or protecting your ego from a realised loss. You are just asking whether this is the best home for your money today, which is the only question that should ever decide whether you stay in a trade.

Personally, I run this check on every open position during my once-a-day review. It takes seconds, and it has talked me out of more “let me just give it a bit longer” holds than any indicator ever has.

As Jonathan Swift put it:

“A wise man should have money in his head, but not his heart.”

That is the whole lesson in one line. The moment a position lives in your heart instead of your head, endowment bias has you.

Where the human edge comes in

A screener can rank every setup in the market for you in a second, and tell you the loser you are holding is no longer the best use of your capital. What it cannot do is make you act on that, close a trade you have grown attached to, and admit the entry was wrong without flinching. The data is now free. The discipline to override your own ownership instinct is not, and it is one of the edges no algorithm trades for you. The screen will show you the better trade; only you can let go of the worse one.

FAQ

What is endowment bias in simple terms?
Endowment bias is valuing something more just because you own it. The classic test: people demand a higher price to sell an object than they would have paid to buy the same object minutes earlier.

Why does endowment bias make traders hold losing positions?
Because closing the loser feels like giving something up, and giving something up registers as a loss. Loss aversion makes that pain outweigh the larger gain available from rotating into a better trade, so traders freeze and hold.

What is the difference between endowment bias and loss aversion?
Loss aversion is the broader principle that losses hurt more than equivalent gains feel good. Endowment bias is one specific result of it: once you own something, parting with it feels like a loss, so you overvalue it.

How do I overcome endowment bias when trading?
Ask yourself whether you would open the exact position today if you held nothing. If the answer is no, the only reason you are still in it is that you own it, which is not a reason to hold.

Is endowment bias the same as the sunk cost fallacy?
They are close cousins and often show up together. Endowment bias is about overvaluing what you own; the sunk cost fallacy is about staying in because of what you have already spent or lost. Both keep you in trades you should have left.

So next time you are sitting on a position that has gone the wrong way, run the test before you do anything else: no positions, fresh start, would you buy it today? Let me know in the comments how often your answer surprises you.

If you want the rest of the mental traps that quietly drain trading accounts, read the pillar: The Complete Guide to Investing and Trading Psychology.

Want the routine that keeps the emotion out of it? Grab the free 15-Minute Swing Trading Starter Kit. It is the exact once-a-day process I use to review every open position and trade any market in 15 minutes.

About the author. Spencer Li is the founder of Synapse Trading and a Certified Financial Technician (CFTe) with 15 years of trading across stocks, forex, crypto, commodities, and bonds. His trade log is public, 404 trades, losses left in. He teaches low-risk swing trading in 15 minutes a day, one system for any market.

Education, not financial advice. Synapse Trading is not licensed by MAS to advise on investment products. Trading carries risk of loss; past performance is not indicative of future results.

Related

Complete Guide to Investing and Trading Psychology (pillar) · Loss aversion in trading · The sunk cost fallacy for traders · How to cut losing trades

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