Battling The Demons Of Fear And Greed In Trading-木村kaela

There are two demons constantly nipping at the heels of every potentially successful trader: fear and greed. Our goal is to cut a path between these demons and help our traders gain control over their trading. This is what is meant by bringing security to speculative investing. This is the motto of our .pany, and we live by it. We understand that no one can control the markets, but what we can control is how we react to the markets. This begins with the submission of the emotions of fear and greed. These two emotions can have a stranglehold over the unprepared trader, causing fatal mistakes that can and will blow out accounts. Fear and greed can express themselves in a myriad of different ways. There are three .mon reactions that traders have when faced with unexpected market activity. Holding Losing Trades When you hold on to a losing trade, you are doing yourself and the trade a disservice. If the market is going against you, you should be out of the trade. There are no ifs, ands, or buts. Lets look at some of the logic of why you would hold on to a losing trade. Fear If fear is ruling your emotions, then you will hold on to a losing trade because you are afraid of missing a market rebound. As we all know, the markets are constantly moving up and down. So the theory is soundif you can hold on just long enough, you may catch the market back on an upswing. The faultiness of this logic is that you are dealing with a finite amount of capital. So can you truly afford to wait it out? Will you allow your fear of missing out on a rebound to dictate your losing all of the money in your account? Greed If greed is ruling your emotions, then you will hold on to a losing trade because you want to get back to where you were. Giving back profits to the market can make you furious, so a little revenge trading sets in. Somehow, you believe the market owes you the profits you lost and then some. So when you have the opportunity to get out of a trade at a breakeven price, you still hold on, hoping the rebound will occur and give you back your profits. This greed will lead you to exiting the market only once all of your profits are gone and your principal has been tapped. Chasing Markets Its easy to get caught chasing the markets. This can occur when you see an opportunity but you are too timid to take it the first time around, so you jump in once it gets moving. Then, immediately, the market doubles back on you and you start losing; you get out only to see the market start moving in your direction. So you go after it again, only to lose again. This is what is going on. Fear The fear of missing out can be overwhelming. It will drive you to operate irrationally. The setup that gave you the position in the first place no longer exists. So you are operating on old information. The logical thing to do is to go ahead and reassess the market, see if the trade is still valid, put a risk management tool in place, then execute a trade. This doesnt happen; the fear gives you a false sense of urgency. If you dont get in now, you will never find another good trade. Greed Chasing the markets when you are affected by greed is the worst ever. You have made money on the trade, the market stalls out, and you are patting yourself on the back. Then the market ramps up again and takes off. You got off the boat, it left the harbor, but you want back on. Dont do it! This is a fatal mistake. Greed is talking to you. The problem of trading is that we take our best educated guess on the information presented to us at the time. If the market says get out, you get out. Dont attempt to just jump on the bandwagon of the market without taking time to reassess. This is exactly how you end up buying the top or selling the bottom of a market only to give back all of your profits in a retracement. Overleveraging Your Account Overleveraging your account is simply putting on too many contracts for your account size. This is easy to do when you dont understand how leverage works in futures and forex, but it can also be a fatal mistake when a trader is taking a chance. This is the equivalent of the all in in no-limit poker. If it works, you win big; if it doesnt work, you are out for the count. Fear Those who overleverage because of fear are simply trying to get their accounts back to even money. Instead of being patient when they lose, they take an aggressive stance against the market to force it to cover their losses. The problem with this approach is that if you lose, you are losing twice or three times as fast as before. The fear of blowing out your account will .e two or three times faster. The trick is to simply grind it out to recoup losses. Unfortunately, fear doesnt allow for a systematic recovery. Greed Just because you made money with one contract doesnt mean you will make money with two contracts or three contracts. Its easy to look at your profits and calculate how much more you would have made with more contracts. This is the failure of 20/20 hindsight. You forget the agonizing when the market was moving against you, and you focus on the end result. Trading is a process. Have a plan and stick to it. Hold back your greed until you rewrite your trading plan based on your new capital amounts. About the Author: . After be.ing a licensed broker at the age of ni.een, he has gone on to author seven trading books. He is a former editor of Futures Magazine, regular contributor to Forbes, has been a featured guest on numerous financial channels, and is a sought after consultant speaker in the futures, forex, and options world. Needless to say his twenty-one years in the industry have been well spent. 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