Trading is not just about analyzing charts and news; it's a constant battle against your own psychology. One of the most insidious traps, which even experienced traders fall into, is the "Concorde Fallacy." This phenomenon can quickly destroy a deposit and ruin even the most perfect trading strategy.
In this article, we will examine in detail what the Concorde fallacy is, why it is so dangerous, and, most importantly, how to learn to avoid it in order to preserve capital and start making truly rational decisions.
The Concorde Fallacy, or "sunk cost fallacy," is a cognitive bias in which a person continues to invest resources (money, time, effort) into a losing project simply because they have already invested a lot in it. The phenomenon is named after the British-French supersonic aircraft project, the "Concorde." Despite the fact that it was obvious from the early stages that the project would not be profitable and would incur huge losses, it was not shut down. The reason? Politicians and engineers did not want to admit that the billions already spent on the project were a waste.
In trading, this effect manifests constantly, and most often in the same situation:
"I can't close the loss; I've been holding this position for so long!"
"I can't lock in this loss; I've put so much effort and time into analyzing this deal and I believe in this idea!"
"I've already lost $100, so I can't possibly lose more, can I? I'll wait for the price to come back."
Instead of closing a losing trade and saving the remaining capital, the trader continues to hold it, hoping for a miracle. They ignore market signals, deny reality, and, as a rule, end up losing much more. Emotions (disappointment, fear, anger) take precedence over logic, and the trader begins to make irrational decisions.
A practical example: A trader opened a long position on the EUR/USD currency pair, but the price went down. At first, the loss was small, but instead of closing the position at the stop loss, the trader decides to "wait." The loss grows, and the trader starts to average down, buying even more to "pull" the trade into profit. As a result, they lose not only the initial amount but also the additional funds invested.
To preserve your deposit and avoid falling into the trap of the Concorde fallacy, you need to develop discipline and learn to make decisions based on logic, not emotions.
1. Create a trading system and strictly follow it. Your trading system should include clear rules for entering a trade, setting a stop loss, and taking profit. These rules must be written down and should not be changed during the trading process. Pre-determine what loss you are willing to accept and exit the trade when the price reaches that level, without hesitation.
2. Use a stop loss. A stop loss is your best friend in the fight against the Concorde fallacy. It acts as a "protector" for your deposit. Set it immediately after opening a trade. This will force you to exit a position when it goes against you, preventing you from making emotional decisions.
3. Analyze trades, not losses. After closing a trade (regardless of whether it was profitable or a loss), do not focus on how much you lost or earned. Instead, analyze why the trade was closed. Was your analysis correct? Did you make a mistake? The answers to these questions will help you improve your strategy, not regret lost money.
4. Forget about the "fair" price. The market never "owes" you anything. Your trade may be a loss, and that's okay. The goal of a trader is not to prove they are right, but to make a profit. If the market says your idea isn't working, acknowledge it and move on.
Losses are an integral part of trading. The difference between a successful and an unsuccessful trader is not that the former doesn't lose, but that they know how to accept losses and learn from them.
Fight the Concorde fallacy, develop discipline, and remember: every closed losing trade is not a loss, but a lesson that brings you closer to true success.
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