Loss Psychology

DEFINITION of 'Loss Psychology'

The emotional aspects associated with investing and the negative sentiment associated with recognizing a loss. The fear of financial losses can be overcome, but it requires looking at what has happened logically and learning from it so that you can avoid the same situation in the future.

BREAKING DOWN 'Loss Psychology'

The difference between professional traders and those who are just getting started is their ability to handle the emotions associated with realizing a loss. Holding a losing position can cripple a rookie investor because many decide to hold and hope that the stock will come back to their entry price. The worst case scenario is if the investor sells when the stock has reached a bottom.

RELATED TERMS
  1. Golden Hammer

    An excessive dependence upon a specific tool to perform all sorts ...
  2. Soft Skills

    The character traits and interpersonal skills that characterize ...
  3. Bandwagon Effect

    A psychological phenomenon whereby people do something primarily ...
  4. Behavioral Finance

    A field of finance that proposes psychology-based theories to ...
  5. Market Sentiment

    The overall attitude of investors toward a particular security ...
  6. Efficient Market Hypothesis - EMH

    An investment theory that states it is impossible to "beat the ...
Related Articles
  1. Active Trading Fundamentals

    4 Psychological Traps That Are Killing Your Portfolio

    Sometimes your largest financial hurdle is our head. Learn about the common mind-traps that trip up investors.
  2. Active Trading Fundamentals

    Understanding Investor Behavior

    Discover how some strange human tendencies can play out in the market, posing the question: are we really rational?
  3. Options & Futures

    The Importance Of Trading Psychology And Discipline

    Find out how investing success can be more about your mindset and less about the markets.
  4. Options & Futures

    Taking The Sting Out Of Investment Loss

    Get a hold of yourself! Take losses in stride and learn to invest dispassionately.
  5. Economics

    Understanding Game Theory

    Game theory is a model for making decisions that weighs the benefits of a choice along with the interaction between participants.
  6. Economics

    Understanding Imperfect Competition

    Imperfect competition appears in several different forms. Markets are evaluated by how they compare to, and try to approach, perfect competition.
  7. Investing

    What Happens to Bond ETFs in Stressed Markets?

    We are going to dive a little deeper today at how bond exchange traded funds (ETFs) fare when the markets are stressed.
  8. Economics

    Explaining Cost Of Capital

    Cost of capital is the cost of funds used to finance a business.
  9. Fundamental Analysis

    Internal Rate Of Return: An Inside Look

    Use this method to choose which project or investment is right for you.
  10. Term

    What's the Peter Principle?

    The Peter Principle observes that people tend to rise to their levels of incompetence in a hierarchy.
RELATED FAQS
  1. What is finance?

    "Finance" is a broad term that describes two related activities: the study of how money is managed and the actual process ... Read Answer >>
  2. What is the difference between positive and normative economics?

    Positive economics is objective and fact based, while normative economics is subjective and value based. Positive economic ... Read Answer >>
  3. How do mutual funds split?

    Learn when mutual funds split their shares and why this practice is primarily a marketing tactic aimed at encouraging investors ... Read Answer >>
  4. What is the utility function and how is it calculated?

    Learn what the utility function is in microeconomic theory and how it is calculated based on a functional form that represents ... Read Answer >>
  5. How can I use a regression to see the correlation between prices and interest rates?

    Learn how to use linear regression to calculate the correlation between stock prices and interest rates by taking the square ... Read Answer >>
  6. How do I calculate the rule of 72 using Matlab?

    Learn how to calculate years it takes for an investment to double or halve based on the rate of return or inflation using ... Read Answer >>
Hot Definitions
  1. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  2. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  3. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  4. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  5. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  6. Economies Of Scale

    Economies of scale is the cost advantage that arises with increased output of a product. Economies of scale arise because ...
Trading Center