How to overcome loss aversion

A place to discuss anything.
Post Reply
eightbo
Posts: 2154
Joined: Sun May 17, 2015 8:19 pm
Location: Malta / Australia

Re: gradual exposure: Theory without implementation is not much use. I also believe everyone has a pain threshold, whether that's a % loss relative to your trading capital, a rough physical amount, time spent in drawdown, whatever. By gradually exposing yourself to anything, a sort of elasticity effect will take place and you can begin to stretch any existing limiting barriers.
spreadbetting
Posts: 3140
Joined: Sun Jan 31, 2010 8:06 pm

LeTiss wrote:
Tue Jul 09, 2019 10:49 am
Aversion to losses is (I believe) the greatest reason for failure in trading, especially when you start chasing those reds. I was one of those people! I found that if my mindset had been affected by a poor trade, and I was feeling angry, frustrated, disappointed etc............I knew my ability to trade successfully with a clear head would be impacted upon, so I used to just grab my coat and pop out to the coffee shop around the corner for 20 mins. It was a great way of getting air in my lungs and coming back with a fresh mind
Drastic times call for drastic measures, expecting things to change by doing nothing won't ever work and the easiest way to stop yourself chasing etc is doing like LeTiss, and many others of us have done, by simply removing yourself from the opportunity. You'd be surprised how much a simple break can calm you down. It's generally considered to take around 60 days to break a habit or replace it with a new behaviour, in the overall scheme of things that's not too bad.
Emmson
Posts: 3363
Joined: Mon Feb 29, 2016 6:47 pm

arbitrage16 wrote:
Fri Jul 05, 2019 4:16 pm
Loss aversion is an issue I am struggling with. If I take a red trade, this will impact my mindset for the trades that follow, I will become cautious and hesitant to enter, or if I take a red I will then switch quickly to another runner to try to make it up.

Curious to know how people approach overcoming this issue, or how you have been able to move past it, thanks.
JollyGreen

viewtopic.php?f=2&t=1612&start=10

The inability to take a loss is in all of us, quite simply it is a learned behaviour created throughout the history of man. Let's face it who wants to admit they are wrong? Everyone makes mistakes and most of them will never require us to hold our hand up and say "Oops, that was my mistake..sorry!" Of course we will do that if it helps someone else to feel better because there is a positive side to it; it's called ingratiation. If you remove the third party it becomes much harder to perform because a little voice inside your head says "nobody will know" or "you'll be alright". I call it the "gambling monster" and I am ready to admit it still gets a grip of me on the odd occasion. It's not so much the gambling these days but occasionally I push too hard and simply compound my loss. I never knowingly allow a trade to turn in play anymore - I still get caught by silly errors that I am responsible for.

You need a certain temperament to perform well at trading and most people either lack it or are unwilling to change. It all boils down to fear of failure IMHO. Everyone sees all these wonderful totals achieved by other traders and so a loss makes people feel bad. I make losses, sometimes large ones and I simply cringe when I look at my P&L. I actually find it helpful to talk about them with other traders and poke fun at myself. It removes that stigma and simply shows I am human.

Back to learned behaviour. As a child it is not normal for you to own up - not if you think keeping quiet will save your skin. That's normal behaviour but add in some evidence or testimony from A N Other who says "yep, it was definitely him/her" then suddenly we're in a different situation and we have to own up. This is quite cathartic for most people and they move on in life. Trading can be the same way but in order to move on and progress you have to rid yourself of the demons and for this to happen you have to experience something positive. Andy hit the nail on the head when he said he learned to accept losses. Basically the loss is a brick wall that stops you moving forward and once you accept the loss and move on you will improve. The next loss will be another wall to climb but once you move on it becomes normal. Then you check the P&L and realise the loss was not that significant after all. However if you don't get past that first wall of accepting losses then you cannot experience the positive feeling associated with the insignificance of the losses.

That first wall is the highest and the hardest to climb but if you conquer that one the rest of them get smaller and smaller.
User avatar
Black Ladder
Posts: 47
Joined: Tue Jul 02, 2019 2:40 am

I'm NEW here. Some good replies to a subject I think effects all. For me, if I can get just one win with no losses I'm happy, and I'm off ... Limited exposure.
User avatar
ShaunWhite
Posts: 9731
Joined: Sat Sep 03, 2016 3:42 am

The longer you make money and the more money you make, the easier it is to put losses into perspective. That's the falacy about changing your psychology, your psychology doesn't change, what changes is your perception of the loss.

Someone who's £1000 down and loses £100 feels pain and behaves irrationally, but someone who's £1000 up and loses £100 isn't affected by it. The problem therefore isn't the loss per se, it's not winning enough. That's a much more pleasant and doable problem than trying to re-wire your head. The std reason for not winning enough between the losses is not actually having a profitble method in the first place. Anyone can poke a mouse button and make money for a few days, that doesn't mean you have a profitable strategy.

Take automation as an example, that never throws the toys out of the pram and does something stupid. It handles every single loss with all the serenity of the Dalai Lama, but if it isn't underpinned by a solid winning strategy, it will still lose.
User avatar
Euler
Posts: 24701
Joined: Wed Nov 10, 2010 1:39 pm
Location: Bet Angel HQ

I think reframing your losses will help. If you lose think of it as another step to the win or further away from your next loss.

I remember reading somewhere about how a company would get encourage cold calling by telling the sales people that if they had a 1/10 strike rate then every rejection would get them closer to a sale, so get on those phones.

While trading is a little different, I think the principle of overcoming a fear is probably similar.
Post Reply

Return to “General discussion”