1. Anger over a losing trade – Traders usually feel as if they are victims of the market. This is usually because they either 1) care too much about the trade and/or 2) have unrealistic expectations. They seek approval from the markets, something the markets cannot provide.
2. Trading too much – Traders that do this have some personal need to “conquer” the market. The sole motivation here is greed and about “getting even” with the market. It is impossible to get “even” with the market. Trading too much is also indicative of a lack of discipline and ignoring set rules. This is emotionally-driven.
3. Trading the wrong size – Traders ignore or don’t recognize the risk of each trade or do not understand money management. There is no personal responsibility here. Typically, aggressive position sizes are used, however if risk is not contained, then it could spiral out of control. Usually, this issue comes from traders wanting to make a huge killing. Maybe they do win, but the point is that a bad habit emerges if a trader repeats this behavior.
4. PMSing after the day is over – Traders are on a wild emotional roller coaster that is fueled by a plethora of emotions ranging throughout the spectrum. Focus is taken off of the process and is placed too heavily on the money. These people are very irritable akin to the symptoms of premenstrual syndrome (something I wouldn’t know about personally).
5. Using money you can’t afford to lose – Usually, a trader is pinning his/her last hopes to make money. Traders fear “losing” the “last best opportunity”. Self-discipline is quickly forgotten but the power of greed drives them, usually over a cliff. Here, the rewards are given more attention and overall personal financial risk is ignored.
6. Wishing, hoping, or praying – Do this in church, but leave this out of the market. Traders do not take control of their trades and cannot accept the present reality of what’s happening in the market.
7. Getting high after a huge win – These traders tie their self-worth to their success in the markets or by the value of their account. Usually, these folks have an unrealistic feeling of being “in control” of the markets. A huge loss usually sobers them up pretty quickly. It’s important to maintain emotional restraint after wins, just as you would for losses.
8. Adding to a losing position – Also known as doubling, tripling, quadrupling down, typically, this means that the trader does not want to admit the trade is wrong. The trader’s ego is at stake and #6 comes into effect as the trader is hoping the markets will “work in their favor”. If you are wrong, you have a near 0% chance of making a full recovery. (more…)
Archives of “greed” tag
rss15 Points for Traders
Control in Trading
New traders may get lucky for awhile and bad traders may win big in the short term but in the long term the market gives every trader exactly what they have earned. While traders can win in the long term with many different types of robust trading methods a trader with no self control will not even survive long, they will not be able to make a plan and follow it, they will let fear and greed over take their mind and end up with large losses and the belief “trading is just too hard” but trading is not hard what is hard is self control, discipline, focus, and keeping the ego in check.
What a trader can control:
- Their entry.
- Their exit.
- Their trading plan.
- Their emotions.
- Their ego.
- Their method.
- Their position size.
- Whether to trade or not to trade.
- How much you are willing to risk per trade.
- Themselves.
What a trader can not control.
- Market movements.
- Volatility.
- The trend.
- Whip saws.
- Political decisions.
- News Headlines.
- Macro economics.
- Every other traders decisions.
- The future.
- The past.
One key to trading is to only focus on what you can control, do not worry and stress about what you can not control, and most importantly, be able to know the difference.
The Secret
What’s the secret of successful traders and how did they make the transition from clueless learner to consistent pro?When the same tools are available to anyone, why do some people out perform others?
The successful traders have discovered The Secret.
It is not the latest indicator, program or hot tipster. It is something that everyone has inside them already.
The Secret is believing in your method and trading it. Believing to the point of having it ingrained into your brain so that it becomes as automatic as breathing. If the charts do this, then I will do that. Trading your plan means cutting losers, riding winners, managing money and risk well. When you arrive at the point of realizing that your self-discipline can only get you so far and that the next step should be reflex trading then you will have found The Secret.
Having to exercise self- discipline to me means that there is still something inside you that you must fight to control. If emotions are still in control of your trading then you must find a way to turn that fear and greed into a move productive energy. Trading your method as a reflex means that there is no struggle to control wayward thoughts. (more…)
Five Rules for Traders
You can avoid the emotionalism, the second guessing, the wondering, the agonizing, if you have a sound trading plan (including price objectives, entry points, exit points, risk-reward ratios, stops, information about historical price levels, seasonal influences, government reports, prices of related markets, chart analysis, etc.) and follow it. Most traders don’t want to bother, they like to ‘wing it.’ Perhaps they think a plan might take the fun out of it for them. If you’re like that and trade futures for the fun of it, fine. If you’re trying to make money without a plan-forget it. Trading a sound, smart plan is the answer to cutting your losses short and letting your profits run.
Do not overstay a good market. If you do, you are bound to overstay a bad one also.
Take your lumps, just be sure they are little lumps. Very successful traders generally have more losing trades than winning trades. They don’t have any hang-ups about admitting they’re wrong, and have the ability to close out losing positions quickly.
Program your mind to accept many small losses. Program your mind to ‘sit still’ for a few large gains.
Recognize that fear, greed. ignorance, generosity, stupidity, impatience. self-delusion, etc., can cost you a lot more money than the market(s) going against you, and that there is no fundamental method to recognize these factors.
Discipline-Risk Managment-Passion for Traders
- DISCIPLINE: The trader must have the ability to control themselves and follow a plan. Discipline is a required skill in trading without it there is no edge, you are either a gambler or simply trading off fear and greed. You will not be successful, instead you will be gamed by those in control of their emotions.
- RISK MANAGEMENT: Risk management must be a top skill for a trader to even survive in the markets. You must structure your risk per trade to be no more than risking 1% or 2% of your trading capital. You have to be able to survive 10 losses in a row. These strings of losses come around more often than a new trader would suspect. If you lose just 5% of your trading capital in each of ten trades you will be down almost 50% and need a 100% return just to get back to even. At this point you are ruined.
- PASSION: A trader must love to trade, without a passion for the markets and trading the new trader will not survive the learning process because anyone with common sense would believe that it was not worth the struggle. Passion will be needed to bring a trader through the learning curve and later the losing streak.
Warren Buffett Has A Modest Proposal For "The Rich"
Speaking at Georgetown University’s Business School alongside his best-bailed-out buddy BofA’s CEO Brian Moynihan, Warren Buffett has some rules (or goals) for the “wealthy” that are summed up perfectly in this quote:
- *BUFFETT: RICH MUST LEARN TO LIVE ON $500 MILLION, DONATE REST
- *BUFFETT SAYS WE HAVEN’T LEARNED WELL ENOUGH HOW TO SHARE WEALTH
- *BUFFETT SAYS PEOPLE WILL CONTINUE TO MAKE MISTAKE OF GREED
- *BUFFETT: SOCIETY MUST ENSURE PEOPLE DON’T FALL TOO FAR BEHIND
What’s Wrong with Capitalism? Too Much “i”
The reality is fear and greed are part of the human condition. There are however times when it appears that the greed factor is dominating — I have not yet figured out if this is a cyclical phenomena or something more insidious.
Regardless, I found this amusing:
Greed & Hope
Always take your profit too soon.
Sell too soon. Don’t hope for winning streaks to go on and on. Don’t stretch your luck. Expect winning streaks to be short. When you reach a previously decided-upon ending position, cash out and walk away. Do this even when everything looks rosy, when everyone else is saying the boom will keep roaring along.
The ONLY reason for not doing it would be that some new situation has arisen, and this situation makes you all but certain that you can go on winning for a while.
Except in such usual circumstances, get in the habit of selling too soon. And when you’ve sold, don’t torment yourself if the winning continues without you.
When the ship starts to sink, don’t pray. Jump.
Learning to take losses is an essential speculative technique. MOST never learn it. Take losses at once and move on. Take small losses to protect yourself from the big ones.
Beware the 3 obstacles to jumping ship:
– fear of regret ( that the loser will turn out to be a winner when you’ve bailed-out )
– Unwillingness to abandon part of an investment ( become willing to abandon )
– Difficulty of admitting you made a mistake.
How to Trade in Stocks by Jesse Livermore
I will just write what the market is going to do tomorow, for that just have some patience for time being till then few quotes from Jesse Livermore’s book How to Trade in Stocks (one of my favorites, originally written in 1940). Pay particular attention to the first quote!
- “Successful traders always follow the line of least resistance – follow the trend – the trend is your friend”
- “Wall Street never changes, the pockets change, the stocks change, but Wall Street never changes, because human nature never changes”
- “Just because a stock is selling at a high price does not mean it won’t go higher” (more…)