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  2. Trading Glossary
  3. Loss Aversion

Loss Aversion

Loss aversion is the tendency to experience losses more strongly than comparable gains, which can distort otherwise consistent financial decisions.

Defined termReviewed 16 July 2026

Related terms

Confirmation BiasTrading PlanFear and GreedRisk-Reward RatioDay TradingOvertrading

Educational risk notice

This material is general education, not personal investment advice or a promise of results. Markets can move beyond planned levels, and losses can exceed expectations when leverage, liquidity, gaps, or operational failures are involved.

Read the full risk disclosure
Trading glossaryReviewed 16 July 2026

Definition

Loss aversion is the tendency to experience losses more strongly than comparable gains, which can distort otherwise consistent financial decisions.

In market context

A trader may hold a losing position to avoid recognizing the loss, close a winner too early, or take excessive risk to return to break-even. These choices can violate the original risk-reward assumptions and turn a manageable loss into a larger one. Predefined exit criteria, position limits, and decision journals can make the bias visible, though they cannot guarantee disciplined action or profitable outcomes.

Source

Use the primary source for fuller regulatory or market context.

FINRA — Following the Crowd: Investing and Social Media

Educational risk notice

This material is general education, not personal investment advice or a promise of results. Markets can move beyond planned levels, and losses can exceed expectations when leverage, liquidity, gaps, or operational failures are involved.

Read the full risk disclosure

Related glossary terms

Selected from explicit term relationships and shared tags.

beginner3 min

Confirmation Bias

Confirmation bias is the tendency to favor information that supports an existing belief while discounting evidence that challenges the original view.

psychology · strategyRead guide
beginner3 min

Trading Plan

A trading plan is a written decision framework defining eligible setups, risk limits, execution rules, review methods, and conditions for not trading.

strategy · psychologyRead guide
beginner3 min

Fear and Greed

Fear and greed are shorthand for emotional pressures that can push trading decisions away from a predefined evidence and risk process.

fear · greedRead guide
beginner3 min

Risk-Reward Ratio

A risk-reward ratio compares a trade’s planned downside to its planned upside using defined entry, invalidation, and target prices before entry.

risk · strategyRead guide