Loss Aversion
Risk ManagementThe tendency to feel losses more painfully than equivalent gains — often causes holding losers too long and cutting winners too soon.
Loss aversion is the well-documented psychological tendency to feel the pain of a loss more intensely than the pleasure of an equivalent gain, which in trading often leads to holding losing positions too long (hoping they'll recover) while cutting winning positions too early (to "lock in" the gain before it disappears). This is the opposite of the discipline good risk management requires — cutting losses quickly and letting winners run.
Recognizing loss aversion as a predictable bias, rather than a personal failing, is often the first step to building rules (like a firm stop-loss) that counteract it mechanically.