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Reference point

The baseline your brain measures outcomes against - usually your entry price, yesterday's close, or your account high.

Nothing feels like a gain or loss on its own; it feels that way relative to a reference. Change the reference and the same position flips from painful to pleasant without a single tick moving.

Traders carry several at once: entry price, session open, the peak the position reached, the account balance at the start of the month. The peak is the cruellest, because it turns a profitable trade into a loss of unrealised gains and makes exits feel like failures.

Choosing your reference deliberately is a real technique. Measuring in r-multiple terms - risk units rather than dollars or entry price - gives you a reference that matches how the strategy actually works.

Related: prospect-theory, r-multiple

Educational only, not advice. Spotted an error? Post in Site Feedback.