Almost every stock trader has fallen into the same trap: when their stock plummets 50%, they'd rather play dead and hold on than sell; when it finally rises 20%, they immediately sell it, fearing their profits will vanish. Some call this "stupid," but the underlying principle is human nature—it's not a lack of understanding, but rather a conflict between instinct and reason.
1. The balance of human nature: The pain of loss is three times heavier than the joy of profit
Neuroeconomic research has long found that people are three times more sensitive to losses than to gains. For example, the pain of losing 10,000 yuan requires a 30,000 yuan gain to offset the pain. This instinctive "loss aversion" directly influences trading decisions:
Holding on after a 50% drop: Subconsciously treating "floating losses" as "not yet making a profit," and as long as they don't sell, they have the illusion of a comeback. It's like someone who loses their phone and would rather spend hours searching through the trash than accept the fact it's "lost"—the pain of admitting a loss is harder to bear than the loss itself.
Run when the stock goes up 20%: The joy of profit is immediate, but the fear of a profit drawdown is even stronger. If you sell, you'll be happy and safe; if you don't sell and the stock falls back, not only will you lose the joy, but you'll also have the added regret of "not making a profit that you could have made."
This phenomenon is even more extreme in the cryptocurrency world: in 2022, many people were still adding to their LUNA holdings even after it plummeted 90%, figuring, "It's already fallen so much, it'll definitely rebound." But in 2023, when BTC surged 20%, they rushed to take profits, missing out on the subsequent doubling of its value. It's not that they don't understand "long-term holding," but rather that the human fear of "losing" far outweighs the desire for "gaining."
2. Your brain is lying to you: the self-consolation that "if you don't sell, it's not a loss"
The human brain has a built-in "cognitive defense mechanism" that automatically makes excuses when encountering pain:
When the stock price drops 50%, you might think, "This is just a correction, the main force is cleaning up the market," or "The company's fundamentals haven't changed, it will recover sooner or later." These reasons may seem rational, but they're actually your brain helping you avoid the pain of making a wrong decision. It's like someone who bought an unfinished building and would rather believe it can resume construction than accept the reality of losing their money.
When the market rises by 20%, I'm overwhelmed by the anxiety of "what if it falls?" Even if I know the market is likely to continue rising, I'll convince myself that "locking in profits is the safest option"—essentially using "small satisfactions" to avoid the torment of "potential loss," just like when I was a kid, holding onto my pocket money, preferring to spend it quickly for fear of losing it.
This self-deception is even more pronounced in the cryptocurrency world: some people buy altcoins that plummet to zero, yet still shout in their chat groups, "Faith is priceless." Yet, they buy mainstream coins and sell them as soon as they see a slight increase, reasoning, "Quit while you're ahead." It's not that you can't see the trend; it's that your brain is helping you "filter out the pain," even if it means missing out on opportunities.
3. There is no absolutely correct operation, only "can you bear the cost?"
Many people say "it's time to stop loss" and "it's time to hold on", but the reality is: no one operation can solve all problems. The key is whether you can accept its consequences.
Some people make money by "not setting stop-loss orders and weathering the cycle": for example, someone bought BTC in 2018 and held onto it even though it dropped 80%, only to have it increase tenfold in 2021. This method presupposes that you have enough spare cash to weather the storm for 3-5 years, and that the underlying asset itself has long-term value.
Some people survive by "quitting while they're ahead": for example, selling every time they make a 10% profit. Even if they miss out on subsequent market trends, they can still avoid a major drop. The cost of this approach is: they may miss out on big opportunities, but they can still preserve their principal.
The most frightening thing is being stuck at both ends: being reluctant to sell when the price drops, holding on until the end and getting cut off; panicking to sell when the price rises, only to chase higher prices after selling, resulting in even greater losses. It's like someone driving a car without looking at traffic lights or braking; it would be strange if nothing went wrong.
4. The key to breaking the deadlock: Don’t fight human nature, learn to “patch your brain”
Since human nature cannot be changed, it is better to design strategies based on it:
Set a "stop-loss line" for losses, but use "step-by-step selling" to reduce the pain: for example, if it drops 20%, sell half first, and then sell the other half after 40%. This avoids the pain of "selling all at once" while also controlling risk.
Set a "stop-loss ladder" for profits and use "sell in batches" to balance greed and fear: for example, if the price rises 20%, sell 20%, if it rises 50%, sell 30%, and keep the rest to bet on the trend. This way, you can preserve some profits without regretting "selling too late."
Use "spare money investment" to cut off the "forced loss" backdoor: only use money that you will not need within 3 years to enter the market. Even if the market drops 50%, you will not be forced to sell stocks because of "rent and loan repayments."
After eight years in the cryptocurrency world, I've seen countless people go head-to-head with human nature, only to end up with broken heads. The secret to making money isn't "overcoming human nature," but "understanding and leveraging it"—just like water flowing over rocks, it doesn't crash head-on into them, but finds a way out through the cracks.
Remember: The biggest enemy in the market is not the main force, not the market situation, but yourself, who is led by your emotions. If you understand this, you have already won over 80% of retail investors.
Blindly working alone will never bring you opportunities. Follow Brother Chao and I will lead you to explore the ten-fold potential coins! Top-level resources!
