Losses hurt more than equal gains in trading

Why does losing $1 feel worse than making $1?

- Bernoulli’s utility theory
A psychology/economics theory from 1738. As your wealth increases, the joy from earning additional money diminishes.

- Why this matters in trading
In trend-following strategies, it’s common to have many small losses and a few large gains.
So even with a low win rate, the big wins need to outweigh the losses.
Ideally, it’s good to target 3:1 or higher (loss 1 vs. profit 3).

👉Original

#Emotion