Loss Aversion
The tendency to feel losses about twice as strongly as equivalent gains.
Also called: fear of loss
In plain language
Loss aversion is a well-documented asymmetry: losing $100 hurts roughly twice as much as gaining $100 feels good.
In trading it produces a specific and damaging pattern — cutting winners early to lock in the good feeling, while holding losers to avoid making the loss real.
That behavior directly inverts risk/reward. The average win shrinks and the average loss grows, which can turn a sound strategy negative.
Why it matters
Loss aversion attacks expectancy from both directions at once. It is the reason predefined exits exist.
Common mistakes
- Moving a stop further away to avoid realizing a loss.
- Closing a winner at the first sign of a pullback.
- Treating an unrealized loss as somehow less real than a realized one.
Keep exploring
These concepts are connected. Understanding one usually makes the next one easier.
A predefined exit that closes a losing trade before the loss becomes serious.
A predefined price where a winning trade is closed automatically.
The average amount you expect to win or lose per trade over a large sample.
How much you stand to gain compared with how much you stand to lose on a trade.
Seeking out information that supports a position while discounting evidence against it.