The trader's atlas of cognitive biases

The 65 cognitive biases that most often cost traders money, in seven families. Each article has a definition, a trading example and research findings. Six are available in full; the full versions of the rest (with a shield and an exercise) are in Hetman Capital Club (in Polish).

Download the 65 mistakes checklist (PDF, Polish)

Randomness and probability

• The gambler's fallacy · full article #1 · the market doesn't owe you a bounce
• The hot hand fallacy #2 · a winning streak isn't proof yet
• The law of small numbers #3 · 20 trades is nothing yet
• The clustering illusion #4 · a pattern that isn't there
• Base rate neglect #5 · how often does it actually work?
• The conjunction fallacy #6 · the better the story, the less likely it is
• The availability heuristic #7 · memorable doesn't mean frequent
• Ignoring regression to the mean #8 · after the exceptional comes the ordinary
• The certainty effect #9 · a small sure profit instead of the plan
• Illusory correlation #10 · you remember the hits and forget the misses

Overconfidence

• Overconfidence #11 · you know less than you feel you do
• The better-than-average effect #12 · everyone is above average
• The illusion of control #13 · you don't control the market
• Self-serving bias #14 · wins are talent, losses are bad luck
• The Dunning-Kruger effect #15 · beginners don't know what they don't know
• The planning fallacy #16 · everything takes longer
• Unrealistic optimism #17 · “it won't happen to me”
• The illusion of knowledge #18 · more information, same accuracy
• The bias blind spot #19 · you see others' biases, not your own
• The illusion of validity #20 · confidence isn't accuracy

Information and beliefs

• Confirmation bias #21 · you look for proof that you're right
• Belief perseverance #22 · the evidence is gone, the belief remains
• Anchoring #23 · your entry price means nothing to the market
• Recency bias #24 · the last day isn't the whole market
• The framing effect #25 · same number, different decision
• The narrative fallacy #26 · a story told after the fact always fits
• Hindsight bias #27 · “I knew it would happen”
• Outcome bias · full article #28 · a good decision can produce a loss
• The halo effect #29 · one strength isn't all strengths
• Authority bias #30 · experts get it wrong too
• Herd behaviour #31 · the crowd doesn't know more than you
• The ostrich effect #32 · you don't look because it hurts
• Conformity #33 · group pressure works online too

Gains, losses and risk

• Loss aversion · full article #34 · a loss hurts about twice as much
• The reflection effect #35 · cautious with gains, a gambler with losses
• The disposition effect · full article #36 · you cut winners fast and hold losers long
• The house money effect #37 · this morning's profit isn't “someone else's money”
• 0️⃣ The break-even effect · full article #38 · chasing break-even costs the most
• The snake-bite effect #39 · after a loss you fear good opportunities
• The endowment effect #40 · your position isn't worth more because it's yours
• The sunk cost fallacy · full article #41 · what's lost won't come back
• Regret aversion #42 · fear of regret is a decision too
• Myopic loss aversion #43 · the more often you look, the more afraid you get
• Mental accounting #44 · a dollar is a dollar
• Ambiguity aversion #45 · known risk versus unknown risk
• Zero-risk bias #46 · cutting a small risk to zero instead of a big one by half

Time, emotions and state

• Hyperbolic discounting #47 · now weighs more than later
• The affect heuristic #48 · emotion disguised as analysis
• The hot-cold empathy gap #49 · when calm, you can't know how you'll act when emotional
• Status quo bias #50 · doing nothing is a decision too
• Decision fatigue #51 · 6 hours at the screen isn't 6 hours of quality
• Mood and weather #52 · your mood isn't market information
• Negativity bias #53 · one loss outweighs five wins
• Choice overload #54 · more options, worse decisions
• Superstition and random reinforcement #55 · your lucky mug doesn't trade

Data and testing

• Survivorship bias #56 · you only see the survivors
• Overfitting #57 · a perfect backtest, a poor future
• Look-ahead bias #58 · in the test you knew something that didn't exist yet
• Cherry-picking #59 · the best examples aren't statistics
• The Texas sharpshooter fallacy #60 · the target painted after the shot

People and ego

• The false consensus effect #61 · others don't think the way you do
• The fundamental attribution error #62 · the situation matters more than you think
• The IKEA effect and “not invented here” #63 · you overvalue what's yours
• Cognitive dissonance #64 · you fit the facts to the decision
• Choice-supportive bias #65 · after the fact, your decision seems better