Merriam-Webster’s dictionary defines greed as simply “… a selfish and excessive desire for more of something (as money) than is needed.” Greed is often referenced as one of the main contributors to trading loss. Greed mangles the mind by distracting the trader from what matters most in the trade, which is quite frankly to protect your capital by prudent planning and following rules. It also distorts your judgment regarding high probability strategies and effective follow-through. Additionally, it is the other side of the fear coin; that is, greed can arguably be thought of as a fear of not having “enough.” Of course, having enough is a purely subjective notion, but for the reasonable person, someone who wants more, more, more as in getting every cent in a move, or wanting more than one’s share, is considered “greedy.” Whether we’re talking about the fear of loss or the fear of not having enough, either way it is a very difficult emotional challenge to getting the trading results that you want. Now, the question is what do you do about those bouts with fear/greed that takes your trading effectiveness south? The important thing of course, is to manage your fear/greed one trade and one incident at a time.
Managing errant emotions is one of the most important trading skills that you can develop. Emotions are an inextricable part of being human and cannot be totally taken out of the trading equation. However, you wouldn’t “want” to take emotions out of your trading even if you could. Yes, negative emotions throw a monkey wrench into your process; for instance, anxiety, fear, greed, guilt, self-doubt, impatience, apathy, to name a few are what mangle your thinking. (more…)
“It is often said by experienced investors that the equity market discounts future events. Investors who support that contention believe that if you wait for an event to occur before investing, then you would probably be too late because the investment implications would already have been priced into the particular investment.