The master trader puts much emphasis on controlling losses. When you keep losses to a minimum by concentrating on ways of reducing losses, you increase the chances of adhering to your strategies and hitting your target numbers. This is important to do, not merely to provide sufficient capital to continue to trade, but also because the psychological effects of losing can hurt your motivation to win. Losses can prompt gambling behavior or self-destructive trading, where the trader throws caution to the winds and keeps looking to recover all the losses in a few high-risk bets. Losses stay longer in memory than do the satisfactory feelings associated with winning, and play a bigger part in influencing traders to act defensively, to cover up, to compensate. Few people do things to compensate for successes.

Because of the pain of loss, people are willing to take greater risks to reduce that pain and to avert it than they are willing to do to maximize their profitability. They are less motivated by profitability and success than by aversion to loss, and therefore they are more likely to take high-risk bets when they are at risk of losing.

—Ari Kiev