Outcome Bias Doesn’t Disappear Just Because You Understand It
Markets move on. These ideas don’t.
Three themes worth adding to your process.
Experience Doesn’t Remove Discomfort. It Changes Your Response to It.
A lot of people think experience eliminates emotional reactions in trading.
It doesn’t.
Experience just changes what you do with the discomfort.
Earlier in a trader’s career, extreme markets often trigger action. Overtrading. Revenge trading. Constantly trying to fade the move. Fighting the tape because the move “doesn’t make sense.”
But over time, if you survive long enough, you begin to recognize that markets can remain detached from your sense of logic far longer than expected.
That doesn’t make the discomfort disappear. It just changes your response.
Instead of aggressively fighting the market, experienced traders often learn to step aside, reduce exposure, or simply survive the environment emotionally until conditions normalize.
Maturity in markets isn’t emotional numbness.
Your Winning Portfolio Can Hide Your Mistakes
It’s dangerous when your winners mask your losers.
The portfolio stays flat or even goes higher, so you convince yourself everything is fine. Meanwhile, one or two positions are quietly deteriorating underneath the surface.
That creates a psychological trap. Instead of reevaluating the weak position honestly, you start subsidizing it emotionally with stronger names elsewhere in the portfolio. You tell yourself the loser “isn’t that bad” because the account overall still looks healthy.
But a weak stock in a strong market is information.
If something can’t participate while everything else is working, you have to pay attention to that. Because if the broader market weakens, those laggards are often the first names that really break down.
The goal isn’t to protect your ego or defend old decisions.
The goal is to allocate capital where it’s being treated best.
Knowing the Trap Doesn’t Mean You Avoid the Trap
One of the great frustrations of trading psychology is that understanding a bias doesn’t automatically free you from it.
You can know intellectually that you should make decisions based on information available right now—not based on what happens afterward—and still struggle emotionally after you sell something.
If the stock collapses after you exit, you feel brilliant. If it rallies, you feel foolish. Even when the original decision was correct.
That’s outcome bias.
And it’s incredibly difficult to eliminate because the brain naturally wants validation. It wants the market to confirm that you were “right.”
The problem is that this mindset quietly distorts future decisions. You start holding positions too long because you’re afraid of regretting the sale later.
At some point, you have to detach from the need for post-sale validation.
Because the market isn’t grading your intelligence.
It’s grading your process.
This is the thinking.
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All opinions expressed in The Lund Loop are my own personal opinions and don’t reflect the views of my employer, any associated entities, or other organizations I’m associated with.
Nothing written, expressed, or implied here should be looked at as investment advice or an admonition to buy, sell, or trade any security or financial instrument. As always, do your own diligence.