Enhancing Trader Performance: Understanding The Perils Of Overconfidence

smbcapitalDavid Blair, Trader DevelopmentLeave a Comment

*****David Blair, The Crosshairs Trader, is a blogger/trader/educator who does a wonderful job of sharing research on elite performance and how it relates to trading. Below is his latest post for the SMB trading community.***** — Editor’s Note

We have all been there. We develop a new edge, test it with a few trades, make money on these trades, believe we have discovered the holy grail, only to begin a new losing streak. Or, we go through a long winning streak, think we have arrived as a professional trader, only to discover that the market had another slice of humble pie for us to eat. If you have not experienced it yet you will as you discover there is a fine line between being confident in your process and becoming overconfident in a desired outcome. The following sources can help us manage the perils associated with overconfidence.


A thorough explanation of the overconfidence effect. (Wikipedia)

The Art of Thinking Clearly. (Psychology Today)

Examples of overconfidence outside the charts.  (Your Dictionary)

Key concepts of overconfidence. (Albert Phung via Investopedia)

There are three ways overconfidence can make a fool of you. (Christine Riordan via Forbes)

Managing Overconfidence. (Russo and Schoemaker via Sloan Management Review)

Two types of overconfidence. (Synapse Trading)

The dynamics of overconfident stock market forecasters. (Deaves, Luders, and Schroder via ZEW)

Can we use the overconfidence bias to game the system?  (Scott, Stumpp, and Xu via The Journal of Portfolio Management)

Overtrading is a by product of overconfidence. (Irwan Trinugroho via IJBM) and (Barber and Odean via Berkeley)

Do not be overconfident when investing. (Larry Swedroe via CBS Money Watch)

Overconfidence is more prevalent in… men? (Jeff Sommer via NYT)


Now, go out and trade with a “healthy” dose of confidence.

David Blair


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