Loss aversion trading

Apr 3, 2017
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#1
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/


 

tomorton

Well-known member
Feb 28, 2002
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#3
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.
 
Apr 3, 2017
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#4
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

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Feb 28, 2002
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#7
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.
 
Apr 3, 2017
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#9
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

Well-known member
May 6, 2003
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#10
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 :)
 

NVP

Well-known member
Jun 21, 2004
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west sussex, UK
fxcorrelator.com
#12
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
 
Apr 3, 2017
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#13
many traders fear potential losses during trades , they close early , loss aversion trading technique.Not everybody has the right mindset for trading.

 
Sep 8, 2015
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#14
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.
 
Sep 8, 2015
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#15
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.