What Greed and Fear do ?



 What greed and fear do:

  • Not setting a stop when the method requires placing a stop (fear of taking a loss).
  • Moving a stop when it shouldn’t have been moved (fear of taking a loss).
  • Removing a stop when it was already in place (fear of taking a loss).
  • Taking profits too early when the signal to exit has not been given (fear of profits being taken).
  • Taking profits too late when the signal is already given (greed).
  • Chasing the market when the entry is already past or no signal was given (greed of missing profits).
  • Not making the entry when the signal is given (fear of losing again).
  • Buying the pullback that is no longer a pullback but a decline (greed based on judgment that it’s now cheaper) or short selling when the rally is now a continued primary direction (fear of losing).
  • Adding on a losing position, i.e. averaging down (fear of losing).

How does a trader go about trading without fear or greed? Although no one can really trade without them, the emotion will still be there, especially when the position is still on. However he can keep them under control by not acting on them.

                                            There are few solutions to this problem:

  1. Write a trading plan for each and every trade and referring to it when he feels the emotion is overtaking him.
  2. Keep a trading journal with each trade taken along with thoughts and emotions during the open position. Recording these moments will reveal how much or how little control he has over emotions that influence or interfering with his trading method.
  3. Use an automated trading system to avoid interacting and interfering with trading. When no trading decisions have to be taken, there is less of a tendency to interfere.
  4. Once the trade is taken and stops and targets are set, walk away from the trading station or go about with other tasks. Stay close and follow every up and down ticks will increase emotions and will eventually affect trading.
  5. Keep the Profits and Loss (P/L) columns out of the desktop. This is the most important factor of all emotions: counting money. By having it readily available emotion will be exaggerated swinging up and down according the profits or losses going up or down. Removing this information is especially recommended for day traders.
  6. Trade small size until emotions are under control. By doing this, it’s obvious that it’s not about making money but about trading the method properly. The further away the thought of money is, the better the emotions are kept at bay.
  7. If trading is technically-based, focus on the charts, not on the quotes windows. Scalpers spend so little time in a position that using quotes and ticks are a necessity. For other traders, these can only increase emotional states.
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