I suffer from the affliction of loss aversion. I believe this is part of Prospect theory which say that one experiences more negative utility from losses than positive utility from gains which leads to non-optimal behavior in decision making. Maybe one could combat this simply (though not easily) by ignoring entry points, paper profits or losses, past booked gains or losses and focus entirely on the evidence and conviction one has at that moment in regard to the future expectation. It would be the Zen trading equivalent of living in the Now.

As an experiment for the last 4 years I have maintained a paper trading account along with my real money account. In the paper account I am largely ambivalent to losses or gains for obvious reason and just focus on what the research is saying at this moment in time going forward. I am embarrassed to confess the paper one has outperformed though with greater variation.

Ralph Vince comments: 

Non-optimal in what sense, maximizing profits?

It actually is optimal in the sense of acquiring beans, Not optimal in acquiring mountains of beans, but optimal in being able to acquire some beans — and it has deep, evolutionary roots.

There's nothing wrong with you or any of us in acting this way.


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