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Disposition effect
In one line: Selling winners too early and holding losers too long.
Odean (1998) found investors sell winning stocks more readily than losing ones, and that this hurt their returns.
It feels nicer to lock in a win than to admit a loss. A pre-set Stop-loss is one way traders try to take the decision out of the moment.
The term 'disposition effect' comes from Shefrin and Statman (1985). Odean also found the winners people sold went on to beat the losers they kept.
Related
Sources & studies
- Odean (1998), Are Investors Reluctant to Realize Their Losses?
- Shefrin & Statman (1985), Journal of Finance
Last checked: 2026-11-04 · Educational, not financial advice.
Education only, not financial advice. No signals. Backtests are hypothetical: real trading can be worse. Past results don't predict future results.