September 3, 2014

Human weaknesses

1) Loss Aversion: the strong tendency for people to prefer avoiding losses over acquiring gains

2) Sunk Cost Effect: The tendency to treat money that already has been committed or spent as more valuable than money that may be spent in the future

3) Disposition Effect: the tendency for people to lock in gains and ride losses

4) Outcome Bias: The tendency to judge a decision by its outcome rather then by the quality of the decision at the time it was made

5) Recency Bias: the tendency to weigh recent data or experience more than earlier data or experience

6) Anchoring: the tendency to rely too heavily, or anchor, on readily available information

7) Bandwagon Effect: the tendency to believe things because many other people believe them

All traders have in one or another time been affected by one or several of these biases. Its easy to make mistakes when you are under pressure and dealing with money.

As Jesse Livermore once said, above all other things we have to guard against ourselves.

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