Atlas of Cognitive Biases #9 · Randomness and probability. A small sure profit instead of the plan
What it looks like in trading
closing at the first small profit because it's a “sure profit”
avoiding every risky situation, even with a good reward-to-risk ratio
looking for a method that “never loses”
An example from a session
The plan calls for an exit at yesterday's VAH. After 20 points of profit the trader closes the position, “because a profit is a profit”. Each such decision is a trifle on its own, but together they systematically shrink the wins while the losses stay full-size.
What the research says
Maurice Allais (1953) and Kahneman and Tversky (1979): most people prefer a certain 3,000 to an 80% chance of 4,000, even though the second option's expected value is higher (3,200). The difference between 99% and 100% feels much bigger than between 50% and 51%.
Overweighting certain outcomes compared with highly probable ones. Certainty is worth more to us than the maths says.
How does the certainty effect show up in trading?
Typical signs: closing at the first small profit because it's a “sure profit”; avoiding every risky situation, even with a good reward-to-risk ratio; looking for a method that “never loses”.
Educational content, not psychological advice or an investment recommendation.