Kevin J Thompson#55

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What is loss aversion in forex trading and why is it dangerous?

Loss aversion refers to the tendency to fear losses more than valuing equivalent gains. Retail traders often hold losing positions too long, unwilling to realize loss, while institutions cut quickly. Benefits: loss sensitivity can encourage caution. Risks: small losses snowball into catastrophic drawdowns. Example: refusing to close a GBP/JPY short as it rallies can drain entire accounts. Overcoming loss aversion requires predefined stop-losses and adherence to risk rules. Forex is a game of probabilities—treating losses as part of the process, not failures, is the mindset shift needed for longevity.