Revenge trading, loss aversion and other mental traps

Psychologists call the predictable mistakes our brains make cognitive biases. They are mental shortcuts that work fine in daily life but cause trouble in markets. Here are five you will almost certainly meet.

Loss aversion means a loss hurts more than an equal gain feels good. Losing $100 stings more than winning $100 pleases. In trading this leads to holding losing positions far too long ("it will come back") while selling winners too early to lock in a good feeling. The result is many small wins and a few large losses.