The typical human weakness is amplified in the highly volatile and high-leverage cryptocurrency contract market.
We can look at it in two parts - why this behavior occurs and how to avoid it.
1. Why is it always 'small wins, big losses'?
There are mainly four psychological mechanisms at play behind this:
1. Loss Aversion
Behavioral economics research shows that the pain of loss is about twice the pleasure of equivalent gain.
When a position reverses, people instinctively resist closing it, as closing equals 'confirming a loss', and humans are naturally inclined to avoid this pain.
2. Anchoring Effect
The entry price has become a psychological anchor.
When the price reverses, people think 'I'm just a little away from the cost, just wait a bit longer', leading to missed opportunities to cut small losses, which ultimately turn into big losses.
3. Gambler's Fallacy & Revenge Trading
Wanting to 'win back' after a loss is an emotional reaction, essentially compensating previous losses with greater risks.
Increasing your position and resisting closure is a direct manifestation of this mindset - fantasizing about recouping losses in one go after a reversal.
4. Short-term satisfaction > Long-term discipline
When there are small profits, people fear giving up their profits and rush to secure them;
When suffering a big loss, people tend to delay the pain, holding onto the belief that 'as long as I don't close the position, I haven't lost'.
This asymmetrical way of operating naturally leads to 'small gains, large losses'.
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2. How to avoid this psychological trap
1. Establish and enforce stop-loss rules
Set your stop-loss price before opening a position; do not change it at the last minute.
You can even use stop-loss orders/conditional orders from the exchange to enforce this, avoiding hesitation at the moment of trading.
2. Fixed risk ratio per trade
No single trade should lose more than 1% to 2% of total capital.
Even if there are several consecutive stop losses, it won't take a heavy toll on your morale, keeping your mindset more stable.
3. Completely cut off the 'break-even' mindset
If you incur a loss, treat that capital as already 'dead'; do not think about recouping it with the same asset or time frame.
You can break the emotional cycle by resting, changing markets, or changing time frames.
4. Reverse emotional principle
If you really want to 'hold on', that is exactly when you should stop loss.
Cultivate the habit of hedging emotions: the most intense emotions are often when the market is most dangerous for you.
5. Keep a trading log
Write down the thoughts behind every time you increase your position, resist closing a position, or hesitate over a stop loss.
In long-term reviews, you will find that these impulses have highly similar patterns. Once identified, it becomes easier to restrain them.
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💡 A summary phrase
The greatest enemy of cryptocurrency contracts is not the market, but one's own emotions and human weaknesses. To break this cycle, one must use rules, discipline, and enforcement to combat this 'innate setup', otherwise, the market will repeatedly exploit the same psychological loopholes.