Loss aversion also explains the behaviour of gamblers (and day traders and even stock market investors) who become risk seeking immediately after experiencing a string of losses. They will do almost anything just to “get back in the game.”
This tendency almost all the times causes traders to taken undue risk interms of :
1. Taking a trade which has a very poor setup.
2. Risking more capital than their system allow them.
As a result of these the trader will end up making further losses. This is a vicious circle. Sure recipe for disaster. A trader or an investor need to identify these tendencies and should have strict self imposed rules to resist themselves from doing any of these. That is the only way to create wealth and preserve it.
This tendency almost all the times causes traders to taken undue risk interms of :
1. Taking a trade which has a very poor setup.
2. Risking more capital than their system allow them.
As a result of these the trader will end up making further losses. This is a vicious circle. Sure recipe for disaster. A trader or an investor need to identify these tendencies and should have strict self imposed rules to resist themselves from doing any of these. That is the only way to create wealth and preserve it.
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