Welcome to Trading Psychology Week
Behind every trade is a human mind..
Day 2 – Loss Aversion: The Brain’s Biased Math
Psychologists Daniel Kahneman and Amos Tversky found that losses hurt twice as much as equivalent gains feel good. This is loss aversion, and it leads traders to hold onto losing positions too long or exit winners too early.
A 2023 study by the CFA Institute showed that even professional traders still fall prey to this bias. It’s emotional, not logical.
Want to beat it? Pre-define your exits. Use stop-losses religiously. And practice “mental accounting”—track emotional reactions to trades, not just outcomes. Master your losses, and your gains will follow.
