Using a novel brokerage dataset covering individual investors’ answers to the MiFID questionnaire and trading data, we investigate the relationship between overconfidence, interpreted as the overestimation of own financial literacy, and the disposition effect. We test two hypotheses: overconfidence reduces the asymmetry between the proportion of gains and losses realized (reducing the severity of the disposition effect); the attenuation of the disposition effect is effectively driven by overconfidence (the psychological channel) and not by the higher turnover (the mechanical channel). Our findings support our hypotheses: investors who overestimate their financial literacy (overconfident investors) are less prone to the disposition effect.