Prospect theory, from Kahneman and Tversky, describes how people actually evaluate risky choices: losses loom larger than gains, decisions are made relative to a reference point (like your entry price), and small probabilities are overweighted. It explains many trading mistakes, such as cutting winners and gambling to avoid a sure loss.
This term belongs to Trading psychology. See how it fits the bigger picture in The Mind, part of the free DEGEN ACADEMY — or watch it play out on the live terminal.
FAQ
What is Prospect theory?
Prospect theory, from Kahneman and Tversky, describes how people actually evaluate risky choices: losses loom larger than gains, decisions are made relative to a reference point (like your entry price), and small probabilities are overweighted. It explains many trading mistakes, such as cutting winners and gambling to avoid a sure loss.