Endowment Effect

The endowment effect is the psychological quirk where people value an item more after they own it than before. In a famous experiment, students given a coffee mug demanded twice as much to sell it as other students were willing to pay for the same mug. Nothing changed except ownership. In trading, the endowment effect makes traders reluctant to exit positions. Once you own a long EUR/USD, you start seeing the trade as "yours" and over-value it. You hold even when the chart has clearly turned against you, because letting go of "your" position feels like a loss beyond just the dollar amount. The fix is to think of every position as a fresh decision. Ask yourself: "if I didn't already have this position, would I open it right now at the current price?" If the answer is no, exit. Don't let ownership distort your judgment of whether the trade still has an edge.