Recently, I’ve been reflecting on my trading habits and realized that many losses actually stem from the same psychological trap—loss aversion. In simple terms, it’s the painful feeling when losing money, which far exceeds the happiness of making money.

I’ve noticed a particularly obvious phenomenon in myself: the pain of losing $100 requires earning over $200 to compensate for the psychological gap. This is not an exaggeration; it’s a real psychological imbalance. Many traders fall into this trap—fear of losses far exceeds the desire to make profits, resulting in missed opportunities.

The specific manifestations are two extremes. One is stubbornly holding onto losing positions, always thinking “wait a bit longer, the market will reverse,” which turns small losses into bigger ones. The other is taking profits too quickly—selling after a 10% gain, fearing the profit will evaporate, only to later see the stock price continue to rise several times. This is the effect of loss aversion at work.

From a neuroscience perspective, when we experience losses, our amygdala is activated, and the fear response overrides rational analysis. The brain perceives losses as “losing what we already have,” triggering a strong sense of crisis. Conversely, profits are seen as “extra income,” with less psychological weight. This is a common human weakness, not just among traders.

I’ve tried several methods myself, which have been helpful. First, establishing a clear trading system—writing down stop-loss and take-profit rules—leaves no room for emotional compromise. Second, strict capital management—controlling risk per trade to 2-5% of the account—so that even losses aren’t too painful. Most importantly, adjusting mindset—treat stop-losses as trading costs rather than failures, focusing on risk-reward ratios instead of solely chasing profits.

Another often overlooked point: accept that losses are part of trading. Don’t obsess over short-term fluctuations; focus on executing your long-term strategy. I now record the emotional state of each trade, which gradually helps me notice when loss aversion is influencing my decisions.

Honestly, loss aversion is a universal human weakness, but if we can use rational cognition and scientific methods to counter it, the quality of our trading decisions and long-term returns will significantly improve. It’s not an overnight fix, but it’s definitely worth spending time to correct.