You have a losing position and you cannot bring yourself to sell. Should I cut my losses or hold and wait for a recovery? That paralysis is loss aversion — one of the most well-documented cognitive biases in behavioral finance. Your brain treats the unrealized loss as less real than a realized one. So you hold, and watch it bleed, and tell yourself it will come back. Sometimes it does. More often, the -20% becomes -50% becomes -80%. Audit your impulse before the loss gets worse.
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Or write the trade on your mind:
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Loss aversion is the cognitive bias where losses feel twice as painful as equivalent gains feel good. In crypto, it causes traders to hold losing positions far too long, hoping to break even instead of cutting and redeploying.
Loss aversion makes you hold losers and sell winners. You cut profitable positions early to "lock in gains" and hold losing positions indefinitely because selling makes the loss "real." This is the exact opposite of what works.
Set stop losses before you enter a trade, not after. When price hits your stop, sell mechanically — do not move the stop down. The pain of selling is temporary. The pain of a 90% loss is permanent.
Because selling locks in the loss and makes it real. As long as you hold, there is hope of recovery. This is loss aversion — and it is one of the most expensive cognitive biases in trading.
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