One can thoroughly know all economic indicators and metrics, understand all tactics and technical signals, make forecasts correctly for as long as they want, but as soon as they enter the market, all that knowledge becomes irrelevant, and the trader simply succumbs to emotions.
At the beginning of a trader’s career, it is indeed very easy to get caught up in one’s own passions and emotions, and only an experienced professional can control their behavior.
Note that every trader experiences emotions from both losses and wins, but what distinguishes professionals is their Spartan resilience and control over their emotions.
There is a law in stock trading: the higher the level of emotionality, the lower the efficiency of work.
It seems simple to control one’s emotions. However, in reality, it’s much more challenging. At the initial stage, it can be difficult to restrain genuine joy and anxiety about one’s successes and failures, but learning to consciously reduce emotional intensity is in the trader’s best interest.
Otherwise, a person risks becoming part of the sad statistic of those who drop out of the game.
The quality accompanied by strong emotions that hinders the full productive work of a trader is greed.
A trader consumed by greed wants unrealistically much from the market and, as a result, also loses money due to their own ambitions.
When it appears. Greed arises in two cases: either there is a predisposition to it, or it arises as a result of several successfully conducted operations.
How it feels. The first thought that characterizes the onset of greed is the idea that “more could have been earned.” It feels like a surge of confidence in one’s abilities, a conviction that the market needs to be “shown who’s boss,” and a desire to start using aggressive strategies.
Causes of occurrence. The desire to earn more money; in “difficult cases,” the present conviction that “everything should be taken from life, here and now.” Typically, the supporting argument for starting to be greedy is the fact of having several successful operations that could have brought more profit if the trader had invested more money in the deals, or if these successful deals were closed, and the market continued in the same direction.
In any case, the reason for the emergence of greed is the feeling of regret that one “chickened out” and did not risk more confidently.
High-risk group. Among people prone to displaying greed in trading, there are usually no those who suffer from a sense of fear. On the contrary, greed is characteristic of successful individuals in business and life, confident leaders. Traders also fall into the high-risk group if their temperament type belongs to the choleric or sanguine types. Conversely, greed is usually not inherent in phlegmatic and melancholic types.
What to do? Clearly, changing one’s temperament is impossible, but it is possible to learn to control one’s behavior and, again, to organize one’s work properly. A trading plan is also indispensable here, as it is in the case of fear (if not more so!). Greed is perhaps the most harmful emotion because when it arises, the sense of caution dulls, vigilance is lost, and the roller-coaster effect intensifies many times over.
Greed threatens to lose money, and quickly. Below are typical situations where this feeling “unfolds” in full, hindering productive work.
“I have enough patience to analyze the market properly and make a trading plan, but as soon as I open a deal and the price starts moving in my favor, I immediately realize that I invested too little money, and that the profit could have been significantly higher! And then I add to the already open position, although I didn’t plan to do so initially…” – This manifestation of greed is not so much about the desire to do something and thus release the energy that has formed but rather about the “calculating” desire to earn more.
The mistake being made here is a violation of risk management rules, that is, a skew in risk management.
To counter this type of greed: Firstly, imagine that right now, when you so strongly want to add to an already open position, the price turns around and goes against you. And if only the planned position is open, then you have a trading plan and, accordingly, solid foundations. Plus the profit you’ve already earned.
Another counterargument against greed can be the vivid realization of what will happen to your deposit if the deal ends in a loss. It’s curious that when there’s a sudden desire to add to an open position, only thoughts about making more profit arise, and few people think about the losses, which will increase in exactly the same mathematical progression.
If you want to enhance your knowledge about trading, be sure to explore the learning options offered by OST UP CHUK Business School – masterclasses and weekly webinars on Market Analysis.
