Greed and Fear: Finding a Balance
The emotional teeter totter of greed and fear, one moment you are the ‘king of the world' making a string of successful trades then it happens. A trader takes that one extra trade (over trades according to their trading plan and money management strategy) or the trader removes a stop loss (ditching money management and objective trading rules) in order continue the win streak only to see their gains vanish. Each and every trader throughout their career will experience losses due to an imbalance of greed and fear. The difference between those who quit and those who carry on to become successful is simple. Traders who learn to overcome emotional imbalance to learn from their mistakes, write down in their trading journals the exact emotional reason why they chose to abandon their objective logic while trading and learning how to correct it, will be the traders who eventually balance greed and fear to become successful.
Greed is simply the want for more, a deep hope for wanting better results for ourselves. For many, greed is a prime motivating factor, the reason why we choose to speculate in the Forex market. However, if greed is left to its own emotional devices unchecked, this in itself has been the downfall of many live accounts. A specific example is a trader who follows their money management strategy to the letter, only to get a thought in the back of their head after two or three weeks or months of consistent trading to push the limits of their account and trade three or four times their normal risk percentage. Most traders do this after their first string of successful trades, greed sets in. Instead of following the same rules for money management the trader begins to machinate about having thousands of extra dollars around, they start to equate their first string of wins with unlimited supply and abundance instead of fastidious planning and careful adherence to rules. They start to dream real big and lose sight of what put them in the position they are, they loose track of reality. Greed takes over, the spirit on the shoulder that says; hey you're doing great, let's put 20% at risk instead of 5% to get our gains quicker. Many times wonton greed couples with over confidence or hubris whereby traders don't believe they can lose. This is the start of the end of their win streak and possibly their trading career if they don't use a journal and write down their emotional state as they start to lose.
When you are trading in a live account make sure you keep greed in check. I know of countless traders who have funded accounts with $2500 and increase them to $7500 within a few short months only to lose all profits and dip into their original margin within a few days. WHY? Greed. If you fall or have fallen into this trap, understand it for what it is. You may need to develop longer term trading skills at lower lot allocations to keep the ‘greed' bug at bay. In this case you will be trading less, reaching for a higher profit to loss ratio which may be your solution to a greed challenge (especially if you are a shorter term trader, with a poor profit to loss per trade ratio who continually falls into the same trap).
More in the next installment on Overcoming Greed and Fear!