Fear and greed is as much as
90% of what trading is all about.
Stock market trading is motivated by two well-defined human
phenomena known as nothing less powerful than
Fear and Greed.
Do you understand why you and others are fearful or greedy? Traders,
money managers, trading
coaches & mentors trade on those emotions, which can be seen in
Trading is understanding your
own fear and greed as
well as identifying
it in others. We can see it all in the charts and thus recognize
odds and probability.
trading is just another human endeavor.
It is an activity controlled by human
emotions. Fear of missing out,
fear of losing; greed with a winner,
greed holding too long. Even if
you consider programmed
computer-trading, humans inputting their
fear and greed do the programming.
It is inescapable.
So for market trading, let's start
will be called "Support"
on our charts. How do
we know where that is on a chart?
page for examples.
Fear is the point at which the price
stops going up, if you were long, and
greed (buying)is the point at which it
stops going down.
If you were short, fear is the point
at which it starts going up and greed is
the point at which it starts going down.
In the markets, fear and greed bring out
the extremes in human behavior, yet this
is the very ammunition a trader looks
for. It is a good thing. It
provides new opportunity every single
All traders are watching their screens
and they think the same thoughts as they
watch the minute or five minute bars add
on to each other forming new patterns.
There is always the fear of getting into
a trade, the fear of missing a trade,
the fear of getting in/out too early or
too late, the fear of losing, the fear
of being at risk. Fear of failure.
Fear of success. There are other
subtle fears at play as well.
There is the greed that
comes with anticipation or
expectations (real or hyped
up in your own mind); the
greed that comes with having
a winner on your hands and
staying with it for that
last .25 cents; the greed
that is supported with news,
rumors, internet chatter,
the greed that comes from a
reward. How about the greed
of feeding your ego ("I know
I'm right")? There are
other subtle variations of
greed at play as well.
Amateur market participants
trade on emotions, traders
trade on discipline taking
advantage of that situation.
Much has been written about fear and
greed in the market and what can
be said on either side will be true for
the most part and somehow contradictory
simultaneously. These truisms and
contradictions make for the volatility
in the price action. It is a
phenomenon that can only be observed and
participated in to be fully appreciated.
But after all is said and done, this is
what trading is all about...master
yourself (see below), your emotions,
first- then you can join the crowd with
serious money- but not until then.
So the question becomes,
how well do you
know yourself as an investor, as a
trader, as a risk taker?
This question, in my opinion, is one
that will be answered over time, by
allowing yourself to evolve
into a trader type, i.e., aggressive,
conservative, swing, position, etc.,
over time. I feel you are
doing yourself a disservice if you
adamantly approach trading, never having
traded before, as a conservative or
aggressive trader. Let the real
world and your experiences guide you in
that regard. You may find months
from now that you are trading very
differently from what you thought you
were going to do.
If you were to set out
to go into business, presumably you
would have no fear. You may have
doubts but you would not call it fear,
otherwise you wouldn't do it. Fear
is too crippling a word to use in
preparation for going into business or
trading. In addition, trading
a business and should be
treated as such. It is a business
involving: 1. Training, 2.
Controlled behavior, self-control.
3. Control obtained by enforcing trading
executions for entry and exit
strategies, 4. Submission to rules
and authority (the markets are always
right). 5. There are rules
and guidelines. The reason traders
use stop-loss orders, for example, is
because they work. Gaps
notwithstanding, stops are the best
way to take you and your emotions out of
a trade. Use stops. The
one time you lose because you did not
use a stop is the lesson you will have
taught yourself to do so. Let them
do the work while you search for new
Discipline is what will
make you take a profit at the right
time, get out with a small loss at the
right time, wait for the right entry
point or perhaps not trade at all.
When you can walk away from a trade
where you left money on the table or you
saved yourself a bundle or you missed a
big, big move without whining about it,
you're on your way to self-control.
This is just so incredibly important and
the way to master this is to focus on
not losing instead of focusing on the
potential profit. Let me repeat
that: focus on not losing rather
than the potential profit. Take
care of your funds, your asset base,
remember, it's the commodity of your
trading business. No money, no
trading, no business. Profits will
follow if you at least follow this rule
regarding money management. I
think I can safely guarantee that rule.
Remember, it is large sums of money from
the mutual funds, pension funds, banks,
hedge funds, and money managers that
drive the markets. They too operate in
this environment. Are they immune
from emotions? Does their job
performance depend on their portfolio's
performance? Don't they have to
answer to their board of directors,
their shareholders? The elements
of fear and greed are alive and well for
"KNOW THY SELF."
a Must Read
Trading is a
the way it is.
Go against them
at your own
peril, it's that
We don't like
adhere to rules
either safety or
For a sound
of rules, see
these pages and
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