Definition. The tendency to take profits too early and hold losses too long.
How it works
Shefrin and Statman (1985) described the phenomenon, and Terrance Odean (1998) confirmed it using data from individual investors' accounts. It's linked to loss aversion: realising a loss means admitting a mistake.
Example
A trader closes a position with a small profit “just in case”, but holds a losing position hoping price will come back.
What to watch out for
What helps: exit rules set before the decision, as part of the plan, and analysing results in R units.
You'll find the full explanation with graphics, examples and exercises in the 🧘 Trader's body and mind space, and its use in the live market in the 🔴 Live Room. Both are available to Club members (in Polish).
