Are You Selling Winning Trades & Keeping Losing Trades? Welcome to the Disposition Effect…

The disposition effect was discovered in the field of behavioural finance.

Wait, before your eyes glaze over this is important!

It demonstrates the tendency of investors to sell assets that have increased in value, while keeping assets that have dropped in value. Or in plain terms, why you sell your profitable trades and hold onto your losing trades.

Surely that goes against everything you believe? Surprisingly not…

Hersh Shefrin and Meir Statman identified and named this effect, which found that people dislike losing significantly more than they enjoy winning.  Let’s put it a slightly different way, the emotional strength of losing is so much more powerful than the joy of winning. It has a much deeper effect on an individual to the point where they can subconsciously prefer the challenge of enduring losing trades!  

This is the Disposition Effect.

The disposition effect has been described as “one of the most robust facts about the trading of individual investors” because investors will hold stocks that have lost value yet sell stocks that have gained value, over and over again.

It’s important to be aware of it, because you can change the outcome. But when do you sell your winners?

This is what we have Dave for, enjoy the video!

4 responses on “Are You Selling Winning Trades & Keeping Losing Trades? Welcome to the Disposition Effect…

  1. Phil

    Cut your losses and let your winners run.
    It seems that you’re using moving averages and not trend lines.
    Can you tell us the config of your moving averages?

    1. admin Post author

      Hey Phil, we totally can, but only to our Inner Circle members that have been through the trading course. You wouldn’t ask Colonel Sanders to reveal his herbs and spices would you?

  2. Terry J Maggacis

    I was just thinking about my paid membership from November last year to Feb this year when I dropped out as I can’t afford the $100/mth, ( low low income earner, two jobs, wife can’t work …you know what I mean blah blah blah) and because I didn’t watch any of the nightly videos I was thinking oh it’s ok I’ll catch up with them soon. of course I see I missed my catch up sessions I was thinking how great it would be to catch them up . Otherwise I mispent all that money for nothing hey. I just want to learn as much as I can. …..I did manage to put some on Z1P after a tax return in March… Finally I’ve got started. I’m so far behind the rest of the field it’s too embarrassing. I can imagine the smart alec bully supernerd kids at school saying how great their “portfolio” is performing and I’m just kicking off at age 53. Oh well. There’s rich and there is poor. I’m in the middle (almost the bottom).
    If I can re-subscribe for a month then I can get those vids in it would be fantastic I certainly think it would.
    Great history on me.

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