#TradingPsychology Imagine you buy shares of a company at $10 per share. Shortly after, the price starts to drop and reaches $8.

Psychology comes into play:

* Fear of loss: Many traders in this situation would feel afraid of losing more money. This fear could lead them to sell their shares at $8, securing a loss of $2 per share.

* Loss aversion: Loss aversion is a cognitive bias that makes the pain of a loss feel stronger than the pleasure of a gain of the same size. This bias could intensify the fear and urgency to sell.

* Hope: Other traders might cling to their shares in the hope that the price will recover. They might ignore negative signals and look for any news that supports their belief that the price will rise again. This is known as confirmation bias, where they seek information that confirms their pre-existing ideas.

* Denial: Some might even deny that the investment was a mistake and rationalize the price drop as a temporary fluctuation.

The consequence:

If the company recovers and the price rises back to $12, the trader who sold out of fear lost the opportunity to make a profit. The trader who held on out of hope might have recovered their losses and even made a profit, but they also risked even greater losses if the company continued to decline.