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.

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