Atlas of Cognitive Biases #56 · Data and testing. You only see the survivors
What it looks like in trading
“all the famous traders started with a small account”
strategies people talk about because they worked
screenshots of profits on social media
An example from a session
Online you see the traders who succeeded. You don't see the thousands who blew up their accounts and stopped posting. Data from Brazil (Chague et al., 2019): 97% of persistent day traders lost money. Nobody writes about them.
What the research says
During World War II the statistician Abraham Wald noticed that planes returning from missions had bullet holes in places that weren't critical. The armour needed to go where there were no holes: planes hit there didn't come back. Elton, Gruber and Blake (1996) showed how ignoring closed funds inflates the industry's average returns.
Drawing conclusions only from the cases that survived a selection process. Those that dropped out are invisible, so the picture is too optimistic.
How does survivorship bias show up in trading?
Typical signs: “all the famous traders started with a small account”; strategies people talk about because they worked; screenshots of profits on social media.
Educational content, not psychological advice or an investment recommendation.