People are reluctant to stop losses when they lose money, and are eager to take profits when they make a little money in investment, which can be explained from a psychological perspective.
In an experiment, two groups of workers were told that they could get a bonus of 1,000 yuan if they completed the task, and one group was told that 1,000 yuan would be deducted if they failed to complete the task. The results showed that the efficiency of the second group of workers was significantly higher than that of the first group, which is called "loss aversion". People's aversion to losses is far greater than their desire for equal gains, because any loss will bring pain to people, and we instinctively resist this pain.
In actual transactions, when we face floating losses, we will instinctively feel disgusted, causing us to be unwilling to stop losses, and even increase our positions to try to make up for the losses. When there is floating profit in the account, we will instinctively think that the money is already ours, prompting us to rush to take profits. This emotion is anchored on the account principal and is caused by the active amygdala in the brain. People with damaged or insensitive amygdala are more likely to achieve trading success.
