Today's topic: Loss aversion

During the trading process, we will definitely encounter the following situations:

1: During the trading process, we all hate losses, and we all hope to make a profit as soon as we enter the market, and hope that our positions will always be in a state of floating profit.

2: Due to the aversion to losses, we are unwilling to set stop losses, as if without setting stop losses, there will be no losses, and we will lose money.

3: Once a loss occurs, excessive trading will occur, and we must win it back. Once we have the mentality of a gambler, excessive trading will lose our reason.

4: Small positions are escaping the top and bottom, firmly believing that what they have caught is the top and bottom, and they have been losing positions. In fact, small amounts add up to a lot, and the losses are quite a lot.

The above 4 points are all the states where we will appear when we hate losses in trading. When losses occur, we will feel frustrated and uneasy, and even panic trading. This is mainly because loss aversion pays more attention to losses and ignores potential profit opportunities.

Then our correct approach is:

1: If our strategy is to stop loss frequently and the profit and loss ratio is not very high, in the long run, there is no way to cover the loss, then we need to change our trading rules first, that is, there is a problem with our trading system and it needs to be changed.

2: When our trading system is fine, we need to strictly abide by the trading discipline. The trading discipline requires strict setting of stop profit and stop loss, including not excessive trading, and only trading what we are good at, and removing those risky transactions that escape the top and bottom.

3: Our strategy can be continuously optimized and improved, which also requires us to learn frequently.

So the essence of aversion to losses is actually that you do not have a complete set of trading strategies, and do not abide by trading discipline and position management. All trading psychology can be solved through a lot of practice. I hope you can get out of the process of aversion to losses.

I am Coach Panda who is good at making complex problems simpler. See you next time.