The main reason for losses in trading is the failure to overcome the three major psychological barriers (sunk costs, cognitive dissonance, disposition effect). Overcoming these barriers and supplementing them with correct strategies (focusing on confident opportunities, training loss muscle memory, reducing position size) is key to stepping into the door of profitability.

# Core reasons for trading losses: The three major psychological barriers

- 90% of trading losses stem from failing to overcome the three major psychological barriers, rather than technical incompetence.

- Three major psychological barriers: **Sunk costs**, **cognitive dissonance**, **disposition effect**, all **coexist and reinforce each other**.

# Detailed explanation of three major psychological barriers

- Sunk costs

- Definition: Refers to **costs that have already been incurred and cannot be recovered**, which become an invisible psychological burden.

- Performance: Due to unwillingness to acknowledge past losses (floating losses turning into sunk costs), decisions are shackled by past losses, leading to small losses turning into large losses (for example, a trade that should have lost 200U ultimately loses 3000U, halving the account), and even falling into a vicious cycle of borrowing money to average down, potentially leading to liquidation.

- Cognitive dissonance

- Definition: When plans conflict with results, **denying the truth and distorting facts** to alleviate psychological discomfort.

- Performance: **Overestimating one's trading system**, believing that when trades do not meet expectations (such as hitting a stop loss), it’s the market's fault rather than the system, leading to **constantly widening stop losses**, exacerbating losses. Emphasize that trading systems are not a holy grail, **recognize mistakes, and stand tall when hit**.

- Disposition effect

- Definition: **Refusing to accept the wrong result and trying to prove oneself right, even when incorrect**.

- Performance: Knowing the trade is wrong (just like knowing a movie is bad yet watching it to the end), but **refusing to give up, even canceling stop losses**, leading to increasing losses.

# Strategies to overcome the three major psychological barriers

- First tactic: Only take confident opportunities

- No need to step out of your comfort zone, **focus on trading patterns you excel at**, and continuously practice deliberately to form natural responses.

- Build a **prototype trading system** based on preferred patterns (such as signals after a trend pullback, wedge three-push pattern), supplementing it with parts like trends and key levels, and enhance confidence through **simulated backtesting** data, making it easier to handle floating losses.

- Second tactic: Train muscle memory

- Deliberately practice facing losses through a specialized small account (such as 100U) to eliminate the fear of losses.

- Professional traders should accept that the outcome of each order is only **stop loss, take profit, or order management exit**, realizing that stop loss is a normal process, **the more one fears losses, the easier it is to incur losses**, and the best way to eliminate fear is to confront it.

- Third tactic: Reduce your position size

- If still afraid of losses, you can **appropriately reduce your position size**, using an **established loss limit** approach (such as a fixed loss amount of 5%, 2%, or 1% per trade).

- Emphasize that **there are no standard position sizes, only the ones that suit you best**, which need to be determined through backtesting.
Focus on the orange, let’s improve together on this contract journey!