Loss Aversion measures if the underlying strategy’s behaviour is symmetrical in case of winning vs. losing positions. A low score means the trader tends let losing positions run longer than winning ones.

Loss Aversion Chart

Diagnoses strategies for loss aversion, because loss averse traders are NOT investable. Tracks, for every trade in the strategy, in % of account equity:

  • Green bar: maximum favorable excursion
  • Red bar: maximum adverse excursion
  • In a line in each bar: performance locked at position close

The x-axis (horizontal) plots position sequence from left (oldest) to right (most recent).

Look for:

  • Green/Red Asymmetry: especially for extreme outliers - if red is taller than green, you're probably looking at loss aversion
  • Trends: Recent growth in red with shrinking green hints at increasing loss aversion

Another interesting application is telling manual from algorithmic traders. Algorithmic traders don't usually suffer from loss aversion, and display more symmetrical patterns than manual ones if Take Profits & Stop-losses are well calibrated.

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