If損小利大 is correct, then why are you損大利小?
If 'Loss Small, Gain Large' is correct, why are you doing 'Loss Large, Gain Small'?
So why are your trades the exact opposite?
“Keep losses small and profits large.” Loss small, gain large. This is a lesson anyone who has learned trading knows. Everyone nods in agreement. But when you actually look at real trading, many peoplerepeatedly do the opposite: “Loss Large, Gain Small”.
In the head, you know that loss small and gain large is correct. Yet your actions become “loss large, gain small.” Why does this contradiction occur? This time, I will explain the reasons why correct knowledge and actual behavior diverge, and how to bridge that gap.
Reasons why knowledge and action diverge
Even though you know loss small, gain large is correct, you end up with loss large, gain small. The cause is not a lack of knowledge.Human emotions pull you in the opposite direction of the correct action.
Here, human psychological habits are involved. People have a tendency towant to confirm profits quickly, while postponing losses. When profits are in front of you, you feel “I want to confirm and be relieved quickly.” When losses are in front of you, you feel “I don’t want to realize it, it might come back.” If you act according to this instinct, profits are shaved off and losses are dragged out—this is loss large, gain small.
In other words, loss large, gain small is the default state that naturally occurs if you just leave it alone. If you follow your emotions, everyone ends up with loss large, gain small. Loss small, gain large is something you must consciously enact in opposition to this instinct. This is the fundamental reason why knowledge and action diverge.
Profits appear → “I want to lock it in quickly” → take small profit (small gain)
Losses appear → “I don’t want to realize it” → unable to cut losses, hold on (large loss)
= Loss Large, Gain Small (the instinctive, losing pattern)
Loss Small, Gain Large requires conscious effort to counter this instinct.