Loss aversion: what does it do to your trades?
Losses hurt about twice as much as equal wins please, and the asymmetry drives classic mistakes: holding losers too long, cutting winners too short, avoiding necessary risk.
What's your experience?
- how loss aversion shows up for you
- the trade it ruined
- the frame that reduces its power
The risk-reward guide works against the asymmetry with numbers.
Background: Risk-reward ratio, win rate and expectancy: the maths behind a trading edge
A high win rate can still lose money. See how win rate and risk-reward combine into expectancy, with break-even win rates and worked examples.
What is a good risk-reward ratio in forex?
There isn't one right ratio. What matters is expectancy, the win rate and ratio together. A 1:2 ratio breaks even at about 33% winners before costs, while a 1:1 ratio needs 50%.
How do you calculate trading expectancy?
Multiply the win rate by the average win and subtract the loss rate multiplied by the average loss. Measuring wins and losses in multiples of the amount risked (R) makes the result easy to compare.
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