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Disposition effect

The documented tendency of investors to sell winners too early and hold losers too long.

The disposition effect is loss-aversion measured in the data. Studies of brokerage accounts show traders realize gains far more readily than losses, which inverts the cut-losses-let-winners-run rule that positive expectancy depends on.

Mechanical exits, such as a trailing-stop on winners and a hard stop-loss on losers, are the standard counter.

Example: across 1,000 trades a trader's average winner is +0.8R and average loser is -1.9R. The setups were fine; the exits were the problem.

Related: loss-aversion, trailing-stop, stop-loss, r-multiple

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