Loss aversion trading

Well at some point you are probably going to have to do some thinking, and I agree during market hours with something on is probably not a good time for it, but when you do find thinking appropriate and you are considering risk vs reward what part does your aversion to loss play? Not that I care, but that is the topic.
 
Here is a perfect example of a loss aversion technique.

I close half my position after a small profit and run the rest of the trade for another .Risk is 1 and reward should be 1 to 3 .In practise risk remains one over a series of losing trades , but breakeven is also a risk aversion technique , and the remaining 1/2 position has only 1/2 reward.

This is truly risk aversion trading.Risk is 1 and reward is 1- 0.5

Ideally risk should be one and , until trend line breaks on 1 hour or 4 hour charts , full trade should be trailed.

In prospect theory, loss aversion refers to the tendency for people to strongly prefer avoiding losses than acquiring gains
 
The best risk reward ratio is 1:infinity where 1 equals 100% of your account. You don't have to put it all on at one time, but over a lifetime. That is why 95% of mutual fund investors don't lose money like traders do. They buy 10k of a fund and are willing to risk it all. All the way to zero, with no profit target in sight.
 
Psychologically, this is the critical point where many individuals will pull the plug, because they are too reactive to emotions as opposed to the longer-term mechanics of their timing strategy.

And typically, when traders pull the plug and exit their strategy, it is exactly at that time that the next profitable trend begins.


Fear of Not Being Right
Too many market timers care too much about being proven right in their analysis on each trade, as opposed to looking at timing as a probability game in which they will be both right and wrong on individual trades.

In other words, by following the timing strategy, we create positive results over time.

Fear of Missing Out
Every trend always has its doubters. As the trend progresses, skeptics will slowly become converts due to the fear of missing out on profits or the pain of losses in betting against that trend.

The fear of missing out can also be characterized as greed of sorts, for an investor is not acting based on some desire to own the stock or mutual fund other than the fact that it is going up without him onboard.
 
I would highly recommend you quit trading until you come up with some kind of a plan. That way you won't be so scared all the time. Your plan should take into consideration your fear of dark nights and loud noises and whatever else you can think up that is scary. If you have to deal with personal fear on top of all the other things the market may present you with perhaps knitting would be a more enjoyable hobby. Cuz when it comes to trading you sound like a nervous nutcase.
 
java said:
I would highly recommend you quit trading until you come up with some kind of a plan. That way you won't be so scared all the time. Your plan should take into consideration your fear of dark nights and loud noises and whatever else you can think up that is scary. If you have to deal with personal fear on top of all the other things the market may present you with perhaps knitting would be a more enjoyable hobby. Cuz when it comes to trading you sound like a nervous nutcase.
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He's just an anti daytrading nut job who likely doesnt even trade.

Can't fault too mich of the stuff here mind but as a want to be trader you've got to work through this crap sadly.
 
Turveyd said:
He's just an anti daytrading nut job who likely doesnt even trade.

Can't fault too mich of the stuff here mind but as a want to be trader you've got to work through this crap sadly.
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ok, but if you have fear it should be because you have no plan, not because trading is scary. I fail to see what fear has to do with loss aversion. Loss aversion is a very real science any actuarial can compute if you feed him the right numbers. Fear of missing out is something for a woman's magazine.
 
java said:
ok, but if you have fear it should be because you have no plan, not because trading is scary. I fail to see what fear has to do with loss aversion. Loss aversion is a very real science any actuarial can compute if you feed him the right numbers. Fear of missing out is something for a woman's magazine.
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Fear of taking losses is real, ie after a string of losers I'm more likely to take a tiny profit rather than risk another loser, obviously it becomes a lose 100 gain 10 and doomed game.

You may be naturally better trade without emotions, fear, greed but I for 1 have spent years trying to over come such issues.

Saying just don't do it, as I'd apply for everything else in my life sadly doesn't work.
 
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