How Does Confirmation Bias Influence a Trader’s Decision to Cut Losses on a Derivatives Position?

Confirmation bias causes a trader to seek out, interpret, and remember information that confirms their existing belief about the position's direction, while ignoring contradictory evidence. In a losing derivatives trade, this means the trader might focus only on positive news or minor price bounces, convincing themselves the market will reverse.

This prevents them from cutting losses quickly, allowing the position to deteriorate further.