The tendency to feel losses roughly twice as strongly as equivalent gains, which pushes traders to hold losers and cut winners.
Loss aversion explains why moving a stop-loss further away feels reasonable and why taking a small profit feels safe. Both behaviors destroy expectancy: the losers grow and the winners shrink. See disposition-effect.
Example: a trader has a 55% win rate but an average win of 0.7R and an average loss of 1.6R because she moves stops. Expectancy is 0.385 - 0.72 = -0.34R per trade.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Expectancy: the average trade. Forty trades sorted by outcome: 24 small losses and 16 larger wins. Weighting each side by how often it happens gives the average result per trade, marked here by the dashed line at +$120.
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