Loss Aversion

Cognitive Control

Losses hurt about twice as much as gains feel good. A psychological principle discovered by Nobel laureate Daniel Kahneman showing that the pain of losing $100 is roughly twice as intense as the pleasure of gaining $100. This makes traders hold losers too long and cut winners too early. Example: You're down $500 on a trade. Logically you should cut it. But the pain of 'locking in' that loss feels unbearable, so you hold on hoping it recovers. Meanwhile, you quickly sell your $200 winner before it 'turns into a loss.'