Lesson 1 of 7 · 7 min
Fear and greed
Every trader rides the same emotional curve. Learn where you are on it, and why the worst decisions happen at the top and the bottom.
By the end you'll be able to
- Describe the emotional cycle from hope to euphoria to panic and relief
- Explain loss aversion and the two habits it produces
- Name the point in the cycle where you are most at risk
Free course
Enrol in “Trading Psychology” to start this lesson
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- 7 short lessons with quizzes and interactive tools
- Lesson videos for members
- A certificate when you finish
You can know every rule in the previous four courses and still lose, because the rules are applied by a person, and the person has feelings. This course is about managing that person.
The cycle
What it feels like: "This is easy." You feel skilled, not lucky. Rules feel like something for other people.
What it leads to: The largest positions of the cycle, taken at the worst prices. Stops are skipped because "it always comes back".
Tap a point on the curve. The most expensive decisions are made at the extremes, where the feeling is strongest.
The same cycle can play out in one trade or over months. The feeling is strongest exactly where the decision is worst. Euphoria arrives at the top, when the largest positions are taken. Panic arrives at the bottom, when they are closed.
Calm, sensible decisions live in the boring parts: hope at the start, and the quiet after relief.
Loss aversion
Loss aversion is the finding that a loss feels about twice as bad as an equal gain feels good. It produces two of the most common trading habits:
- Cutting winners early. A small open profit feels precious; you close it to make sure of it, long before the target.
- Letting losers run. Closing a losing trade makes the loss real, so you hold, hope, and widen the stop.
Together they guarantee small wins and large losses: the exact opposite of what the reward-to-risk lesson asked for.
Try it
What would you do?
Your trade is up 40 pips of a planned 60. Price pauses and prints a small red candle. Your stomach tightens. What do you do?
Notice how the feeling arrived before the chart gave any real signal.
Quick check
Question 1 of 3
At which point in the cycle are the largest positions usually taken?
Question 2 of 3
Loss aversion typically makes traders:
Question 3 of 3
A feeling arrives before the chart shows any signal. This is:
Go deeper: The habits that separate traders who last · Loss Aversion in Trading: Why Losses Feel Twice as Big