Every trader has experienced this: when their account drops a bit of money, that uncomfortable feeling can last all day. But when they make roughly the same profit, the excitement quickly fades. This is due to loss aversion—a psychological phenomenon where traders feel losses much more intensely than equivalent gains.

Here's a number to consider: according to behavioral finance research, the negative emotional impact of a loss is about 2 to 2.5 times stronger than the positive emotion of an equivalent gain. In other words, the pain of losing 100 dollars requires earning 200 to 250 dollars to offset. Do you feel this way?

**Common manifestations include**

The most typical is holding onto losing positions. When the coin you bought drops, many think "the market will reverse eventually," comforting themselves while stubbornly holding on, only to deepen the loss. They stick to the original stop-loss point, refusing to act until liquidation. Conversely, after earning a little, they get scared at minor pullbacks and quickly close the position, fearing profits will disappear, only to see the market soar afterward and regret it deeply.

Another phenomenon is using the purchase cost as the decision standard. Clearly, the coin bought at 1000 dollars is now worth only 800 due to a fundamental collapse, but because they haven't "broke even," they refuse to sell. This is a typical cost trap—completely ignoring the current market situation and obsessing over the entry price.

**Why does this happen**

From a neurological perspective, losses trigger the amygdala—the fear center. Once activated, the rational prefrontal cortex is suppressed. So when experiencing a loss, you can't think clearly; all you want is to escape that discomfort. This is an evolutionary leftover—originally a protective mechanism, but in trading markets, it becomes a tool for self-sabotage.

In the long run, this psychological bias causes traders to systematically make suboptimal decisions: settling for low-risk, low-reward opportunities, missing high-risk, high-reward chances, and ultimately earning returns far below the market average. Repeatedly holding onto losing positions and prematurely taking profits erodes the gains they could have made.

Recognizing this is crucial—only by understanding the existence of loss aversion can you use strict trading discipline and risk management to counteract it.