Fear: Loss Aversion

Loss Aversion

As defined in Wikipedia, "loss aversion refers to people's tendency to prefer avoiding losses to acquiring equivalent gains. Some studies have suggested that losses are twice as powerful, psychologically, as gains."

Emotions strongly affect our decision making. May it be in trading, or any decisions in our everyday life. As a result, we end up making wrong decisions and regret it.

Yesterday, 20 Nov 2017, I bought PXP near EOD at 9.70. I already had my trading plan (copied Sirius Lee's Momentum trade). Cut loss point at 9.50, Target Price at 10.33-10.83 (5-10% trade objective). Everything was set.

Today, 21 Nov 2017, it gapped up on opening and reached 10.26. My position is already green.

But there's one problem. A problem every trader hates the most. SLOW INTERNET! Most of the readers probably didn't know yet, I'm a Seafarer onboard a ship transporting chemical cargoes around Europe. And yes, we do have internet. But sometimes it's so slow depending on the heading of our ship. My charts doesn't load. I could not monitor the movement of this stock. Buying & Selling orders will take a lifetime before it will be posted. Cutting losses would be hard on this strong momentum stock.

So that fueled my fear of losing. That fear of turning my green port to red. Loss Aversion. I was filled up with emotions, at the same time cursing the internet in russian language. "Cyka blyat!"

As the stock goes down below 10.00, I sold my position at 9.95, closed my trading platform, and then went back to sleep. It's only past 3am here, 7 hours difference from PH.

The supposed to be 11% gain becomes only 1% gain. 😂 That's how Loss Aversion hit me. But anyway, every loss will only be considered a loss if you don't learn from it.

Lesson for today: Follow your system. Execute according to your trading plan to avoid emotions interfere your decision making. We have missed today's trade, but there will always be another opportunity. And when that opportunity comes, apply everything you have learned today.

PS: I posted this late, because of no internet.