Loss aversion measured in pips
Posted: Thu Oct 29, 2026 7:43 am
Behavioural economics shows that people feel losses roughly twice as strongly as equivalent gains. In scalping, that shows up in a specific way.
A loss of five pips feels worse than a gain of five pips feels good. So traders cut winners early to secure the gain and let losers run in the hope of recovery. The result is a distribution of small wins and large losses.
Awareness helps, but it is not enough. A structural fix is better, such as fixed stop and target distances placed at the time of entry, so that the decision is made before emotion arrives.
Another is to define risk in terms of a unit, say one R, and think of results in multiples of that unit. A loss of one R and a win of one R feel symmetrical, even if the pip amounts differ.
Tracking average win and average loss in R across hundreds of trades shows whether loss aversion is leaking into the numbers.
What is the ratio of your average win to your average loss, and is it what you planned?
A loss of five pips feels worse than a gain of five pips feels good. So traders cut winners early to secure the gain and let losers run in the hope of recovery. The result is a distribution of small wins and large losses.
Awareness helps, but it is not enough. A structural fix is better, such as fixed stop and target distances placed at the time of entry, so that the decision is made before emotion arrives.
Another is to define risk in terms of a unit, say one R, and think of results in multiples of that unit. A loss of one R and a win of one R feel symmetrical, even if the pip amounts differ.
Tracking average win and average loss in R across hundreds of trades shows whether loss aversion is leaking into the numbers.
What is the ratio of your average win to your average loss, and is it what you planned?