How To Control Fear And Greed In Trading
There is an old saying that the market is driven by fear and greed. Anyone that has placed more than a couple of trades will surely have experienced these two emotions.
All traders experience emotion. The distinction between a successful trader and an unsuccessful trader comes down to how they deal with that emotion. Let's look at how these emotions affect a successful trader and an unsuccessful trader in various scenarios:
1. The trader's three previous trades have been losers. The unsuccessful trader will consider this before placing his next trade and be fearful that this trade will also end up a loser. This might result in a delay in placing the trade whilst waiting for the price to confirm that they were right - thus missing a perfectly good entry. They might suddenly discover that some other factor, previously unconsidered, is a reason not to enter the trade at all. Basically they will be fearful of another loss.
The successful trader will have tested their strategy extensively and will be aware that a series of losing trades is very probable. They will also measure their success on whether they place the trade according to their system rather than whether it is purely a winner or a loser. They trust their system and place the trade when the set-up occurs. The fear is removed from the trade because they know that several losers in a row is to be expected.
2. Once a trade is entered it immediately moves against the trader. The unsuccessful trader will fear that they have made a mistake. They fear making another loss so they wait and hope that the market moves back in their favour. The fear of taking another loss now controls their trading decisions, they might move their stop further out so the market doesn't take them out for a loss. They might ignore the trade, hoping that it will get back to at least breakeven - the daytrade becomes a position trade of a few days and then it becomes a long term 'buy and hold' strategy.
The successful trader, of course, will know from extensive testing of his system that such trades happen and that the trade might come round or it might hit the stop. His stop is in place and it will remain in place - the system dictates where the stop is, not the trader's fears.
3. Once a trade is entered it immediately moves strongly in the traders favour. The unsuccessful trader will suddenly see a villa in the sun or a new sports car flashing before his eyes. This trade is going to the moon so he removes his price target and decides to let it go. Greed has now completely taken over his trading decisions and the previous plan (if any) is ignored. Of course, markets rarely move in one direction for long and when the market turns the greed turns to fear as the dream slips away and the trader tries to hold on until the price gets back to where it was. The daytrade becomes a position trade...
The successful trader has set a target, either a certain price or a timed exit and will stick to it. If the trade only takes 5 minutes then that's just great, there's plenty that won't.
Fear and greed are human emotions - we can't do anything about that. But, when it comes to trading we need a way to control those emotions. Here's a few tips:
1. Know your system. If you have confidence in your system this helps to override those feelings of fear and greed. Confidence can only come from designing and extensively testing your own ideas. You can never be fully confident when you rely on someone else's tips or signals.
2. Automate your system. Computers do not suffer from fear and greed, they won't hold onto a loser praying for a miracle or screaming at the screen that the market is wrong - they'll just cut it if that is what the system says to do.
3. Money management. Quite simply, no matter how good your system you must only risk a sensible amount - and always money you can afford to lose.
Tim Wreford runs Online Futures Trading, a website that provides information and resources for traders. Tim also provides a free day trading system, the results of which are updated daily on the site.
 Google News Updated : Thu, 24 Jul 2008 00:51:42 GMT "Bad Girls" mind-set, Pierson and Parker a volatile mix - WNBA - ESPN ESPN - By Mechelle Voepel What does it take to light up a tinderbox? Just a spark. Or in the case of the Detroit-Los Angeles scuffle with 4.6 seconds left of a WNBA game Tuesday, it was a Spark. WNBA reviewing fight between Detroit, LA players Don't make Mahorn the bad boy in WNBA scuffle Publ.Date : Wed, 23 Jul 2008 23:15:40 GMT Angels' bats loom large in victory over Indians - Los Angeles Times
Los Angeles Times - Normally tepid offense produces season highs in runs and hits (19). Jeff Mathis, Howie Kendrick and Casey Kotchman combine for 13 hits, Francisco Rodriguez gets 42nd save and team ups West lead to 10 By Bill Shaikin, Los Angeles Times Staff Writer The ... Mathis drives in six; Angels hold off Tribe in wild slugfest Angels pound Laffey, slam Mastny, in ripping Indians, 14-11 Publ.Date : Thu, 24 Jul 2008 00:05:36 GMT Microsoft refunding gamers, Games for Windows Live goes free - Ars Technica
Ars Technica - By Frank Caron | Published: July 23, 2008 - 07:06PM CT PC gaming wasn't a huge factor at this year's E3, but it seems that Microsoft was merely biding its time before making its big moves to try and perk up the waning PC gaming market. Microsoft Drops Player Fees On Games For Windows Live Unangst: GFW Live Has Full Game Download Plans 'On The Roadmap' Publ.Date : Thu, 24 Jul 2008 00:17:11 GMT US House Approves Fannie-Freddie Bill by 272-152 (Update1) - Bloomberg
Bloomberg - By Brian Faler July 23 (Bloomberg) -- The US House of Representatives approved legislation designed to shore up confidence in Fannie Mae and Freddie Mac and stem the record surge in mortgage foreclosures, sending the bill to the Senate. Video: House OKs Rescue for Homeowners, Freddie, Fannie US mortgages: Bush relents on veto threat to Fannie and Freddie ... Publ.Date : Wed, 23 Jul 2008 23:37:49 GMT "Dark Knight" beats total of previous Batman film - Reuters
Reuters - By Dean Goodman LOS ANGELES (Reuters) - After just six days of release in North America, the new Batman sequel "The Dark Knight" has grossed more domestically than its predecessor did in its entire run, distributor Warner Bros. Video: 'Dark Knight' Sets Weekend Box Office Record 'Dark Knight' may be summer's highest-grossing film Publ.Date : Wed, 23 Jul 2008 23:19:56 GMT Genetic Cause of Statin-Related Muscle Pain Found - Washington Post
Washington Post - By Ed Edelson WEDNESDAY, July 23 (HealthDay News) -- British researchers have discovered a genetic variant that causes some people who take cholesterol-lowering statins to have the muscle weakness called myopathy. 7 Reasons Not to Dismiss Statin-Caused Pain Discovery may boost statin safety Publ.Date : Wed, 23 Jul 2008 21:59:27 GMT Google unfurls less laughable Wikipedia - Register
Register - By Cade Metz in San Francisco → More by this author Back in December, the search engine cum world power announced an anyone-can-edit online encyclopedia it insists on calling Knol, and this morning, with a post to The Official Google Blog, ... Google Launches Knol, The Monetizable Wikipedia Google opens Knol website, a wiki with bylines Publ.Date : Wed, 23 Jul 2008 23:46:16 GMT RSS Datafeeds |
PARLOT::Ebooks, Scripts,
Websites, and more... The psychological aspect of trading is usually underestimated by those... Read More You know the old joke:"How do you make a million... Read More ISO 4217 is an international standard describing three letter codes... Read More Cut your losses short and let your profits run. This... Read More For those unfamiliar with the term, FOREX (FOReign EXchange market),... Read More Currencies are traded in dollar amounts called "lots". One lot... Read More Money management determines how much to risk on each individual... Read More One of the best kept secrets in trading is that... Read More FEARING LOSSESThere is a huge difference between being risk averse... Read More The base unit for the renminbi is the yuan, which... Read More I am reading a fantastic book on trading, first published... Read More There are some common mistakes I've seen traders make in... Read More For those of you who are interested in forex trading,... Read More The following are some of the most common types of... Read More The European Union (EU) constitution was dealt a double blow,... Read More Consider the following: As a trader you are in a... Read More What is Options Trading?An option is simply granting someone the... Read More QUESTION: If the SP futures fall through support and go... Read More The recent upheavals in the world financial markets were quelled... Read More An online forex broker is a firm that facilitates retail... Read More Foreign exchange trading is the trading of currencies. Most currencies... Read More "FX" is an abbreviation of "forex" or "foreign exchange." Foreign... Read More To trade on the forex market, the largest financial market... Read More Success in any profession can be broken down into a... Read More IntroductionThe exchange rate refers to the value of the US... Read More
Adsense
websites
Psychology Of Trading
Risk and Stock Trading Fees: The Two Barriers To Overcome If You Want A Successful Trading Career.
ISO 4217 in Forex Trading
Trade Exit - How To Cut Losses And Let Profits Run
FOREX 101: Make Money with Currency Trading
The Seven Most Traded Currencies in FOREX.
Money Management - The Holy Grail Of Trading
The Secret of Reduced Margin Spreads
Money Management, Part 2
Chinas New Currency Regime
The Yin and the Yang of Markets
Money Management, Part 1
Where to Get Forex Training
Types of Foreign Currency Hedging Vehicles
Crisis of Confidence in the EU
The Nature of the Trading Business
Options Trading - Advantages and Disadvantages
Day Trading the Index Futures - How to Judge Good Entries
Financial Crises, Global Capital Flows and the International Financial Architecture
A Look at Online Forex Brokers
Reality of Online Forex Trading
Forex Market Overview
Forex Broker Involvement Optional
6 Critical Factors For Successful Trading
Factors Influencing a Currency Pair Exchange Rate
Affordable and Reliable Web Hosting Starting at $4.49/Month
Creativity in Trading
"Is it important to be creative in your trading?"I'm not... Read More
FOREX Trading Philosophy
Keen on starting FOREX trading? Why would you not be?... Read More
The Secrets of the Super-Traders
The first and perhaps most important "secret" is to realize... Read More
Money Management, Part 2
FEARING LOSSESThere is a huge difference between being risk averse... Read More
Is The U.S. Dollar About To Reverse Course?
For the first time in several years the U.S. dollar... Read More
Why Demo Account Performance Is Often Better Than Real Account Performance
Over the past several years, the popularity of online currency... Read More
6 Critical Factors For Successful Trading
Success in any profession can be broken down into a... Read More
Online Futures Trading - Advantages and Disadvantages
What Is Online Futures Trading?A futures contract is an agreement... Read More
The Major Players in the Foreign Currency Exchange Market - FOREX
Since the US dollar is the centerpiece of the market,... Read More
Hedging Foreign Exchange Risks
The exchange rate of the Macedonian Denar against the major... Read More
Forex Trading Online - 7 Reasons Why You Should!
Forex trading online is a fast way to use your... Read More
FOREX 101: Make Money with Currency Trading
For those unfamiliar with the term, FOREX (FOReign EXchange market),... Read More
How Currencies are Traded in the FOREX Market
Currencies are traded in dollar amounts called "lots". At 100:1... Read More
FOREX - Where Fortunes Are Made Everyday
The Foreign Exchange Market ? better known as FOREX -... Read More
An Evaluation of the Devaluation
A Minister of Finance is morally right to lie about... Read More
Financial Crises, Global Capital Flows and the International Financial Architecture
The recent upheavals in the world financial markets were quelled... Read More
Where to Get Forex Training
For those of you who are interested in forex trading,... Read More
Dont Deny Reality
If you want to be a successful trader, you must... Read More
Commodity Trading - Advantages and Disadvantages
What Is Commodity Trading?Commodity futures markets allow commercial producers and... Read More
Option Arbitrage in the Forex Market
What is arbitrage? Arbitrage is the simultaneous buying and selling... Read More
Why Hedge Foreign Currency Risk?
International commerce has rapidly increased as the internet has provided... Read More
Forex Training: Follow Your Gut or Your Broker
Which way will the forex market move? Do you just... Read More
Stocks Trading - Advantages and Disadvantages
What is Stocks Trading?Companies throughout the world issue new stock... Read More
Money Management, Part 1
There are some common mistakes I've seen traders make in... Read More
ISO 4217 in Forex Trading
ISO 4217 is an international standard describing three letter codes... Read More
Currency Trading |