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.

---

Commodity Trading - Advantages and Disadvantages

What Is Commodity Trading?Commodity futures markets allow commercial producers and... Read More

Sending Signals for Trading in Forex

Forex signals are sent by a forex firm to their... Read More

5 Questions You Need To Have Answered Before You Back-Test Your Forex System

As 90-95% of new forex traders lose money within the... Read More

The Nature of the Trading Business

Consider the following: As a trader you are in a... Read More

Day Trading Course or Day Trading Technique Seminar: Learn Day Trading Education

Profitable day traders recognize that momentum trading is among the... Read More

New Opportunities with Forex Trading

The simplest definition of currency trading is the practice of... Read More

Day Trading the Index Futures - How to Judge Good Entries

QUESTION: If the SP futures fall through support and go... Read More

Adaptation to the Realities of the Market

Do you think adaptation to the realities of the market... Read More

Online Futures Trading - Advantages and Disadvantages

What Is Online Futures Trading?A futures contract is an agreement... Read More

Choosing A Forex Broker

With currency trading becoming ever more popular, the number of... 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

The Major Players in the Foreign Currency Exchange Market - FOREX

Since the US dollar is the centerpiece of the market,... Read More

Crisis of Confidence in the EU

The European Union (EU) constitution was dealt a double blow,... Read More

Your Mother Could Make Money In Forex Trading

The question would be not whether she could but rather... Read More

Stocks Trading - Advantages and Disadvantages

What is Stocks Trading?Companies throughout the world issue new stock... Read More

Be a Smarter FOREX Currency Trader: Three Basic Principles

Below I will describe three basic principles that may come... Read More

Trading Timeframes

Long TermLong term traders will work from end of day... Read More

Exploring the World of Day Trading

Are you looking into a career in day trading? In... Read More

Where is the Market Going?

If you ask me whether the market will have moved... Read More

Factors Influencing a Currency Pair Exchange Rate

IntroductionThe exchange rate refers to the value of the US... Read More

Forex Brokers - Helping to Maximize Your Success

A Forex broker is a broker dealing in foreign exchange,... Read More

Forex Training: Follow Your Gut or Your Broker

Which way will the forex market move? Do you just... Read More

Momentum Trading: A Practical Day Trading Strategy to Get Profits from Hot Stocks

Momentum day trading can be extremely profitable when done correctly...Day... Read More

Forex Trading - Advantages and Disadvantages

What is Forex Trading?Forex, or Foreign Exchange, is the simultaneous... Read More

How To Handle A String Of Losses

Everybody hates to lose and unfortunately no one is blessed... Read More

Experience

Throughout our course on futures trading, we have tried to... Read More

Dont Deny Reality

If you want to be a successful trader, you must... Read More

The Secrets of the Super-Traders

The first and perhaps most important "secret" is to realize... Read More

Why Forex Traders Plan To Fail Before They Even Place Their First Trade & How You Can Know It & ...

Have you heard the wise saying that a trader who... Read More

Forex Profits

The Forex Market-What, When and Why?Forex, FX and the Forex... Read More

Two Timeless Rules in FOREX Investing

RULE #1) ~ Cut your losers; let your winners ride.One... Read More

Day Trading Training ... You need more than just going to a free stock market workshop to learn

Day trading is all about making buy and sell decisions.... Read More

The Yin and the Yang of Markets

I am reading a fantastic book on trading, first published... Read More