Survivorship Bias in Trading: Why Sticking to Your Trading Plan is Crucial

Have you ever wondered whether it’s okay to deviate from your trading plan, especially when it leads to a profit?

At first glance, making money without strictly following your rules might seem like a success. But in reality, these wins are random and dangerous. They create the illusion of skill where none exists. This is a classic example of survivorship bias in trading.

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Survivorship Bias: The Illusion of Success

Survivorship bias is a cognitive distortion where people focus only on successful examples while ignoring failures.

In trading, this manifests as follows:

• You make a profitable trade by ignoring your plan and assume that this approach works.
• You forget about the thousands of traders who broke their strategy and lost everything.
• You start believing that discipline is unnecessary just because you got lucky once.

📌 Fact: You can make money once without a plan, but over time, a lack of discipline will lead to losses.

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Why Deviating from a Trading Plan Leads to Failure?

In financial markets, nothing is more dangerous than random profits. They reinforce bad habits and trick traders into thinking they can bypass proper strategy.

Example:

• Imagine 1,000 traders trade without a plan.
• In the first round, 500 traders make a profit.
• In the second round, 250 of them win again.
• By the third round, only 125 "successful" traders remain.
• These traders start writing books, courses, and articles about how they "made it."
• Meanwhile, no one talks about the 875 traders who lost everything.

This is survivorship bias—people only pay attention to the winners while ignoring the majority who failed.

📌 Truth: The market does not reward luck; it rewards consistency and discipline.

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Justified vs. Unjustified Profits

✔ Justified profit – The result of careful analysis, strict adherence to a trading plan, and proper risk management.

❌ Unjustified profit – A random win that reinforces bad habits and makes traders overconfident.

What happens when a trader earns unjustified profit?

• They stop fearing the market.
• They begin to believe they are "special."
• They start increasing risks while ignoring statistics.
• Eventually, they lose their capital.

📌 Fact: Just because you made money on a random trade doesn’t mean the method works.

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How to Avoid Survivorship Bias?

📌 1. Don’t Trust Random Profits
If a trade was profitable, ask yourself: Did it follow my plan, or was it just luck?

📌 2. Work with Complete Statistics
Analyze ALL of your trades, not just the successful ones. Random wins are meaningless if your long-term statistics show losses.

📌 3. Study Failures, Not Just Successes
When reading about successful traders, look for those who lost money too. Why? Because the truth about markets is in the losses, not in rare success stories.

📌 4. Stick to Your Trading Plan
Markets are chaotic, but discipline creates order. Without a system, your success depends on luck, and luck always runs out.

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Conclusion

🚀 Trading is not about quick wins, it’s about managing probabilities.
🚀 Survivorship bias makes people overestimate luck and underestimate risk.
🚀 Don’t let a random win destroy your discipline.

📌 Real success is not a single winning trade. It’s consistent profits over time.

 

📌 Follow your strategy, manage your risks, and don’t let the market deceive you.