Loss Aversion
Psychology
What it means
The brain's tendency to feel a loss about twice as painfully as an equal-sized gain feels good. It drives beginners to hold losers and cut winners too early.
Example
A $100 loss hurts as much as a $200 gain feels good. So a beginner holds a losing $100 trade hoping it recovers, but sells a winning $100 trade the moment it appears -- exactly backwards.
Mistake beginners make
Beginners think they are "being patient" by holding losers. They are actually being driven by loss aversion to avoid booking the painful loss, which turns small losses into large ones.
Related terms
- FOMO — Fear Of Missing Out: the urge to jump into a trade because you see it rising and cannot st…
- Revenge Trading — Trading impulsively right after a loss to "win the money back," usually with a bigger size…