Mental accounting – This bias leads traders to treat money in different “buckets” rather than as a fungible whole. For instance, they might be reluctant to sell a loser in one account while happily taking gains in another, simply because of how they mentally categorized the funds. In automated strategies, mental accounting may be reflected in separate handling of different account segments or goals. Investopedia explains mental accounting as treating different sums differently based on subjective criteria, such as selling winning positions over losers for tax reasons. In trading, this can hurt performance (e.g. selling the best assets first). Robots typically avoid this by viewing the portfolio holistically, but if a system is partitioned by strategy or purpose, care must be taken that capital allocation remains rational.

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