The following example is based on a short term (1 week) Option Trade.
Let’s say you really like AAPL above 195.
The stock crosses 195 and as it’s moving towards 196, you buy the 195 call for $2.
All of a sudden, AAPL goes from looking great to terrible.
The stock drops from 196 to 194 and time is running out on this trade.
Your options are only worth $1.30.
You just lost .70 per contract.
The emotional trader says “I’m in it to win it” and presses on, likely losing the remaining $1.30.
The Long Term Trader recognizes their level (195) has been broken and takes the loss.
A week later, the same trade appears again and you buy AAPL at 195 for $2.
This time AAPL keeps going and you exit at $3.20 for a nice quick profit.
The Emotional Trader lost $2 and made $1.20. They are down .80.
On 10 contracts, they are down $800.
The Long Term Trader lost .70 and made 1.20. They are up .50.
On 10 contracts, they are up $500.
Now imagine this scenario, week after week and month after month.
Of course, sometimes the stock will come back but not enough to make it worthwhile.