Loss aversion trading

[foroom lluzers]

Traders often close positions to avoid a loss ,they take small profits in fear of a larger loss , they put on revenge trades to recover losses , they add to losing positions to average down , they hold on to losing positions , they convert positions into options trades to avoid taking a loss.

Loss aversion traders lose more in trying to avoid losses.

In economics and decision theory, loss aversion refers to people's tendency to prefer avoiding losses to acquiring equivalent gains: it's better to not lose £5 than to find £5. Some studies have suggested that losses are twice as powerful, psychologically, as gains.

Loss aversion examples
https://www.hitinvestments.com/15-examples-of-loss-aversion/

 

[foroom lluzers]

loss aversion proof

http://www.businessinsider.com/colin-camerer-wins-genius-grant-2013-9?IR=T

 

[tomorton]

Its true.

What we wrongly call get-rich-quick schemes are actually often marketed and even designed as low-risk schemes. The people we denigrate for wanting to get rich quick are actually usually more interested in not getting poorer through risk. And do they get rich as a result? - No.

 

[foroom lluzers]

People like to have emotional fulfillment , as opposed to doing a job correctly.

A barrister was appointed for a 3 hour job , instead of presenting the case to win , he wanted to do the least amount of work and have an easy session in court , he lost the case .He wanted to run with the money , do a easy job , get paid , and enjoy his time and spend the money!

Traders are very similar they enter a trade , make a profit and run with it , before they lose out the profits into evaporation of a failed trade.

 

[tomorton]

This might be interesting -
https://hbr.org/2013/03/do-you-play-to-win-or-to-not-lose

It relates to organisational management but the not-lose personalities who are so damaging in business / public service must also be represented in the trading community.

 

[foroom lluzers]

This might be interesting -
https://hbr.org/2013/03/do-you-play-to-win-or-to-not-lose

It relates to organisational management but the not-lose personalities who are so damaging in business / public service must also be represented in the trading community.

Did you give it to Barjon

He plays to protect his bottom line (account balance).

 

[tomorton]

The timing of the thread is interesting. Discussions on another website were making me think of starting a thread here to collate people's tactics for increasing profits on winning trades, rather than identifying great entries or managing risk or overall strategies.

 

[barjon]

Did you give it to Barjon

He plays to protect his bottom line (account balance).

Yup, that's it. If you don't think trading is about your bottom line then you're living in cloud cuckoo land.

 

[foroom lluzers]

Yup, that's it. If you don't think trading is about your bottom line then you're living in cloud cuckoo land.

Nothing wrong with that , so true.Our brains are designed to behave this way.

Once we accept this fact , we can move forward for achieving higher targets.

BTW ;On friday I closed a dax trade early for small profit and another this morning , so I am not in cloud cuckoo land.

 

[barjon]

Nothing wrong with that , so true.Our brains are designed to behave this way.

Once we accept this fact , we can move forward for achieving higher targets.

BTW ;On friday I closed a dax trade early for small profit and another this morning , so I am not in cloud cuckoo land.

If you have any interest in how I approach my trading then it's all here http://www.trade2win.com/articles/2006-trading-business . Feel free to criticise

 

[foroom lluzers]

 

[NVP]

Traders often close positions to avoid a loss ,they take small profits in fear of a larger loss , they put on revenge trades to recover losses , they add to losing positions to average down , they hold on to losing positions , they convert positions into options trades to avoid taking a loss.

Loss aversion traders lose more in trying to avoid losses.

In economics and decision theory, loss aversion refers to people's tendency to prefer avoiding losses to acquiring equivalent gains: it's better to not lose £5 than to find £5. Some studies have suggested that losses are twice as powerful, psychologically, as gains.

Loss aversion examples
https://www.hitinvestments.com/15-examples-of-loss-aversion/

No arguments here FL ......all of those things you have discussed are programmed into human behaviour .......doesn't help the trading mindset needed

 

[foroom lluzers]

many traders fear potential losses during trades , they close early , loss aversion trading technique.Not everybody has the right mindset for trading.

 

[Arashimuro]

How much money did traders lose because of fear?) I often find myself not entering the order only because I'm not 100% sure about it too.

 

[Arashimuro]

To eliminate such situations you need to follow your strategy and forget about your feelings. Although you're right, fear is a great enemy of any trader.

 

[min6485]

Avoid the pain of lossess

No arguments here FL ......all of those things you have discussed are programmed into human behaviour .......doesn't help the trading mindset needed

One almost has to go into the trade knowing that this (risk) is what I will lose. To keep a level head because our minds are wired to avoid pain and it started at childhood

 

[TFA]

i guess you could always take partial profit or shift the stop loss