Atlas of Cognitive Biases #43 · Gains, losses and risk. The more often you look, the more afraid you get
What it looks like in trading
watching a position's P&L every second
judging each trade on its own instead of as part of a series
changing the plan mid-trade because of the current P&L
An example from a session
A position in line with the plan swings between +0.5R and −0.5R. The trader checks the P&L every few seconds and closes it at the first −0.3R, even though the plan allowed for −1R.
What the research says
Benartzi and Thaler (1995) used this mechanism to explain why investors demand such a high equity premium. Thaler, Tversky, Kahneman and Schwartz (1997): participants who received frequent feedback on results chose less risky allocations and earned less than those who evaluated results less often.
When we evaluate results very often, we see losses more often, and they hurt more than gains please. As a result we make overly cautious or chaotic decisions.
How does myopic loss aversion show up in trading?
Typical signs: watching a position's P&L every second; judging each trade on its own instead of as part of a series; changing the plan mid-trade because of the current P&L.
Educational content, not psychological advice or an investment recommendation.