Cognitive Bias Glossary
The 12 mental biases that cost traders money, each with a real trading scenario and a counter-move.
Biases that wreck accounts
Loss aversion
Losses feel about twice as painful as equal gains feel good.
In trading You hold a losing trade well past your stop because “booking it” hurts too much.
Counter Pre-commit to your stop and treat it as non-negotiable; think in R-multiples, not dollars.
Disposition effect
The urge to sell winners early and hold losers too long.
In trading You snatch a quick 0.5R profit but let a 1R loser run to 3R hoping it comes back.
Counter Set your target and stop before entry and let them execute mechanically.
Confirmation bias
Seeking information that supports what you already believe.
In trading After going long you only read bullish takes and dismiss the bearish chart.
Counter Actively write the strongest case against your trade before you enter.
Recency bias
Overweighting the most recent outcomes.
In trading Three wins in a row and you size up, sure the streak will continue.
Counter Anchor decisions to your long-run stats, not the last few trades.
Anchoring
Fixating on an irrelevant reference price.
In trading You refuse to sell below your entry price even after the thesis breaks.
Counter Judge the trade on the current setup, not on what you paid.
Sunk cost fallacy
Throwing good money after bad to justify past losses.
In trading You average down on a broken idea because you are “already in this deep.”
Counter Ask: would I open this position fresh right now? If not, close it.
Overconfidence
Overestimating your skill and the precision of your forecasts.
In trading A hot streak convinces you to abandon risk limits and trade oversized.
Counter Fix your risk per trade in advance; let the edge, not your mood, size positions.
Gambler’s fallacy
Believing a streak makes the opposite outcome “due.”
In trading After four red candles you buy, certain a green one must come next.
Counter Each trade is independent; act on setups, not on what “should” happen.
Herding / FOMO
Following the crowd for fear of missing out.
In trading You chase a coin that is already up 40% because everyone is talking about it.
Counter If you missed the entry, wait for your own setup — there is always another trade.
Availability bias
Overrating what is vivid or easy to recall.
In trading One memorable liquidation makes you trade tiny for months despite a solid plan.
Counter Rely on your logged results, not the loudest memory.
Hindsight bias
Believing, after the fact, that the outcome was obvious.
In trading “I knew it would dump” — so you stop respecting stops next time.
Counter Journal your reasoning before the outcome to see what you actually knew.
Endowment effect
Valuing something more simply because you own it.
In trading You cling to a bag you would never buy at today’s price.
Counter Mark positions to market daily and decide as if holding cash.
No biases match your search.
How to use this
You cannot delete these biases — they are built into human cognition. What you can do is recognise them in the moment and build a rule around each one. Skim the list, find the two or three that describe your worst trades, and turn their counter-moves into checklist items.
Read the full guide → Back to the psychology hub →Knowing a bias is not beating it
Naming a bias feels like progress, but recognition alone rarely changes behaviour in the heat of a trade. The biases here are paired with concrete counter-moves for exactly that reason — a rule you can follow beats an insight you merely have. Combine this glossary with the pre-trade checklist and a journal, and you convert “I know about loss aversion” into “my stop is set and I do not touch it.”