DEFINITION
Confirmation Bias
Seeking out information that confirms existing beliefs about a trade while ignoring contradictory evidence. A leading cause of holding losers and ignoring exit signals.
In depth
After entering a trade, traders unconsciously filter information to support their position. They notice bullish news and dismiss bearish data. The fix: predefine exit criteria before entering, then mechanically follow them.
Related terms
Anchoring Bias
A cognitive bias where traders rely too heavily on the first price they saw or the entry price of a trade, preventing rational decision-making on exits. Common cause of holding losers too long.
Disposition Effect
The tendency to sell winners too early and hold losers too long. One of the most documented behavioral biases in retail trading.
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