Trading Psychology

Loss Aversion

The psychological tendency for losses to feel more painful than equivalent-sized gains feel pleasurable — a major driver of holding losing positions too long.

Loss aversion describes a well-documented psychological pattern where losing a specific amount tends to feel more psychologically painful than gaining that same amount feels pleasurable. In trading, this asymmetry is a major driver of holding losing positions too long — such as moving a stop-loss further away to avoid “locking in” a loss.

See how loss aversion drives real trading mistakes in Trading Psychology 101: Fear, Greed, and Discipline.