Investing term
What is Disposition effect?
Selling winners too early to lock in gains and holding losers too long to avoid realizing the loss.
The disposition effect is the documented habit of selling winners too soon to lock in a gain, while clinging to losers to avoid admitting a loss. It's exactly backwards from sound practice, which says let winners run and cut losers. The pull comes from emotion: realizing a gain feels good, realizing a loss feels like failure.
For example
You quickly sell a stock that's up 15% but hold one that's down 40% "until it recovers" — the disposition effect steering you to keep the wrong one.
Disposition effect is taught hands-on in Stage 12 — Investor Psychology: FOMO, Panic & Biases.
See the lesson →