Adam P65 Lee

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What is cognitive dissonance in trading?

Cognitive dissonance occurs when traders hold conflicting beliefs, such as knowing they should cut a loss but convincing themselves to “wait for recovery.” This mental conflict leads to irrational decisions and prolonged losses. For example, a trader might justify holding a losing EUR/USD trade by blaming “temporary volatility.” The way to overcome dissonance is sticking to predefined rules, using stop-losses, and avoiding emotional justifications. Accepting mistakes objectively reduces conflict and improves discipline.