In the field of investment, the disposition effect is a thought-provoking phenomenon. This psychological tendency often leads investors to sell early when they are in profit and to hold on excessively when they are in loss. In short, investors tend to "cash in on gains and hold onto losses." This behavioral pattern not only reflects the complexity of human nature but also reveals the emotional factors involved in investment decision-making.

The disposition effect has a profound impact on investment decisions. When asset prices rise, investors may sell too early out of fear of losing existing gains, missing out on greater profit opportunities. Conversely, when asset prices fall, investors may continue to hold out of unwillingness to admit losses, leading to further losses. This psychological mechanism creates a contradictory situation: becoming conservative when in profit and taking risks when in loss.

Research shows that retail investors' tolerance for missing out on upward opportunities is about twice that of their tolerance for losses. This finding further explains why many people find it difficult to practice the investment principle of "letting profits run and cutting losses short." Although this maxim is widely recognized, it is often difficult to implement in practice.

To overcome the negative effects brought by disposal effects, investors need to establish a rational investment strategy. This may include setting clear profit-taking and stop-loss points, regularly reviewing and adjusting the investment portfolio, and cultivating an objective understanding of market volatility. At the same time, investors should also strive to improve self-awareness, understand their risk tolerance and investment goals, and make calmer and more rational decisions.

Overall, the disposition effect reminds us that successful investing requires not only market knowledge but also a deep understanding and effective management of one's own psychology. By recognizing and striving to overcome this psychological tendency, investors can make wiser choices in a complex and ever-changing market, achieving long-term investment success.