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The Truth About Fear And Greed While Trading That You Need To Know

Jul 17, 2008
Is greed good? Are you chasing the market? Can you pull the trigger? The truth about 'Fear and Greed' must be understood to trade well.

Inside: The methods that will help you to control your emotions whilst trading are discussed. The more you control your emotions the more money you're likely to make from your proven trading system.

There are many phrases passed around about trading such as 'buy low, sell high,' but how many traders actually understand how 'fear and greed' drive the markets?

The surprising truth about fear and greed:

The pros and cons of simulated trading and the essentials of money management will both be discussed due to these aspects being related to the emotions of fear and greed in trading. Basically the aim of this article is to shed some light on emotions in trading and how they can be handled by traders.

Many people know that 'fear and greed' cause movements in market prices but it's wrong to think that these are always negative emotions.

Let's look at greed first. Greed is good! Well a certain amount of greed is good because it's needed to make speculators want to trade in the first place. A downside to greed is when it causes traders to 'chase the market,' for example by buying after a large sudden move higher when the market is overbought (i.e. overvalued).

You also need to avoid being too greedy when exiting your trades i.e. you should take profits where your proven trading method says you should.

Fear can be a positive and negative emotion too. Fear is a very good thing when it causes you to close out any losers with discipline where your system tells you to. But not too early or too late.

On the other hand, too much fear can stop you from even entering a trade the moment your system tells you to. To overcome this fear it's best to paper trade or make simulated trades for a while before dipping your toes in the water.

Paper trading is something that most traders don't like doing before they first start to trade for real because they want to get out there in the markets pulling in money.

But it's important to test your trading methods first by paper trading as this will help you 'pull the trigger' and commit more easily to trades when the time comes to trade for real.

The main problem with paper trading though is that you don't get as exposed to the emotions of trading as you do when trading for real. Therefore, it can only prepare you to a limited extent.

Using safe money management techniques also helps you to overcome the fear of entering trades. The exact money management rules you use will depend on your trading system.

Generally speaking a good rule is to use no more than 5 to 10% of your initial trading capital per trade. Then only increase the amount you're risking per trade once you've doubled your initial trading capital. - But still risk no more than 5 to 10% of your new level of trading funds.

To sum up, yes you can make big money from trading but it's a marathon not a sprint. You'll need to have realistic expectations and not give in to too much greed. Some greed is good in this walk of life or you would never enter a trade! But not being too greedy means you should take profits where your proven method tells you to and of course, taking the occasional loss really isn't a problem, just don't let them run.

Gradually increasing the size of your trades as described is one of the keys to success. Finally, using a proven trading system will also reduce any fear when entering trades.
About the Author
Philip passed the SFA Futures exams and has been trading for over a decade, first in London and now from home. Just Click Here to get your free brandable viral trading eBook Killer Patterns Plus you get a free mini course when you send a blank email to wizardtrader1@aweber.com. Get free live prices, free charts and commission free trades for life with sources revealed inside Wizard Trader. You save thousands- not just FX.
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