The Trading Psychology Podcast Ep77: Loss Aversion
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Oct 21, 2024 Dive into the fascinating world of loss aversion and its impact on trading decisions. Discover how fear can prevent profitable trades and how our emotional biases shape investment choices. Learn the difference in behavior between using personal and borrowed funds, and hear personal anecdotes about Bitcoin investment. The discussion emphasizes the need for systematic trading approaches to combat emotional hurdles. Gain insights on mastering trading psychology for improved success and the importance of disciplined money management.
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Inherent Trading Disadvantage
- Humans are inherently disadvantaged in trading due to built-in psychological biases.
- These biases, like loss aversion, aren't about choice or discipline but are inherent human traits.
Loss Aversion Impact
- Loss aversion means losses feel twice as bad as equivalent gains.
- This asymmetry affects trading decisions, making losses harder to process than wins.
Betting Game Study
- A betting game study showed people bet more recklessly with someone else's money.
- Given the same amount, they become more risk-averse when they feel it's 'their' money.