Cognitive Biases Impact Short-Term Investment Decisions: Systematic Strategies Mitigate Risks

Short-term investment decisions are significantly affected by cognitive biases such as overconfidence, loss aversion, and confirmation bias, as well as emotional fluctuations [1]. These biases lead to cognitive fusion—where strong predictions block objective information, amplifying greed and fear, resulting in irrational trading behaviors [3][4].

To counter these issues, successful investors adopt systematic frameworks focusing on long-term probability-based gains instead of short-term predictions. Key strategies in 2025 include:

1. Dollar-Cost Averaging into High-Dividend Low-Volatility ETFs
   : These assets reduce emotional trading risks, with top-performing ETFs delivering monthly returns up to 3.7% [6].
2. Grid Trading
   : Effective in volatile markets via mechanical buying/selling to avoid emotional interference.
3. Value Averaging
   : Outperforms traditional dollar-cost averaging in cost control and return enhancement.

Recent research shows growing cross-disciplinary studies between behavioral finance, psychology, and neuroscience, emphasizing rule-based approaches to overcome biases like overconfidence and anchoring effects [2].

Investors should prioritize long-term probability-based gains over short-term predictions. Adopting systematic strategies helps mitigate cognitive biases and emotional impacts, ensuring rational decision-making [7].