Consider the following

Consider the following:

If making money is important to you, as it is to most people, you will have difficulty taking a
small loss. If you bear in mind a trader’s self esteem and the fact that money is on the line,
you will appreciate the psychological turmoil this can cause. Profits, on the other hand, are
just as difficult to cope with. When a large profit occurs, he gets excited, and the bigger the
profit becomes the harder it is to resist the temptation to take it now. However, profits need to
be run to cover inevitable losses. In their efforts to avoid risk, investors actually end up
creating it.

Consider the following psychological test:

A group of people are given the following choice over a number of trades:
A 75% chance to win $1,000 with a 25% chance of getting nothing, or a sure $700. Four out
of five subjects take the second choice, even after it is explained to them that the first choice
leads to a $750 gain over time.
Another test gives people the following option; a sure loss of $700 or a 75% chance of losing
1,000 and a 25% chance of losing nothing. Three out of four took the second choice,
condemning them to lose 50 more than they have to. So, in trying to avoid risk, investors
create it.
Emotion causes most traders to act in a way that will lead to their ultimate demise. They
prefer a sure gain, however small, to a logically based speculation to seek a large profit. On
the other hand, they actually seek risk in the realms of losses. They let losses run to avoid
taking a small loss and, by doing so, they create greater risk for themselves. They expose
themselves to bigger losses when they could have had a certain small loss.