People who trade will typically view fear and greed as the enemy. However, there are some good parts of these emotions. It is very important that we as traders identify the methods the emotions affect how we trade. Then we can learn to hedge against the negative and leverage the positive. So now let's identify the good and negative methods in which fear and greed control our trading.
The Dark side:
- Fear causes us to stop on our wins, fearing we will lose our profits.
- Being greedy causes us to ignore our money management regulations and exposes our portfolios to the possibility of catastrophic losses.
- Fear causes us to lay aside, having not pulled the trigger, even though the opportunity matched our criteria.
- Fear will lead us to get rid of our stop loss and keep going in a bad trade, while we hope for it to go back up.
- Greed will make us do bad trades that go against the rules we have set.
- Fear will make us believe that we will never profit and will make us stop trading.
- Greed will trigger the impulse to make a trade when the market is on the move, because we don't want to miss the chance, even though it violates the rules that we have set.
The Healthy Side:
- Greed makes it so we stay in good trades that make us profit.
- Fear causes us to cut our losses short right when we figure that the trade isn't going in the right direction.
- Greed keeps us trading when we are in the zone.
- Fearleads us to consistently use a stop loss.
- Greed will help us fund an account, even though we blew up the previous one.
- Fear of loss convinces us to put in the effort and time needed to develop a good plan of trading.
- Greed gets us into the Forex market, and makes us want to stay.
- Greed pushes us into trades that meet our criteria.
- Fear and greed make us become more confident traders.
Fear and greed may destroy our profits, they can also inspire and drive us to become better traders. Consider the list above and determine in what ways fear and greed affect you and the decisions you make. Capitalize on the positive and try to eliminate the negative.