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.

---

The Meaning of FOREX Price Charts and How to Use Them

There is one very important factor that you should consider... Read More

A Short Introduction To FOREX

FOREX is the world's largest and most liquid trading market.... Read More

Forex Trading Systems

The foreign exchange currency market is the largest market in... Read More

Why Hedge Foreign Currency Risk?

International commerce has rapidly increased as the internet has provided... Read More

Experience

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

How to Trade Currency

We all know when you go on a trip to... Read More

Forex Trading - Advantages and Disadvantages

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

Forex Market Overview

"FX" is an abbreviation of "forex" or "foreign exchange." Foreign... Read More

Getting a Forex Trading Education

Many Americans are interested in getting involved in forex trading.... Read More

New Opportunities with Forex Trading

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

Forex Options Market Overview

The forex options market started as an over-the-counter (OTC) financial... Read More

Facts of Day Trading

Are you thinking of entering the fast-paced world of day... Read More

Online Stock Trading: Freedom of Trade

I remember the first time I started to trade online.... Read More

Where is the Market Going?

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

6 Critical Factors For Successful Trading

Success in any profession can be broken down into a... Read More

Stock Market Report: Day Trading or Swing Trading Online? Stock Investing Information

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

How To Control Fear And Greed In Trading

There is an old saying that the market is driven... Read More

Disgruntled

The following situation happens quite often to many traders. Look... Read More

Forex Brokers - Helping to Maximize Your Success

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

Money Management - The Holy Grail Of Trading

Money management determines how much to risk on each individual... Read More

Forex Signal, Forex Signals Advice

There are lot's of Forex signals providers out there. New... Read More

Online Futures Trading - Advantages and Disadvantages

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

Psychology Of Trading

The psychological aspect of trading is usually underestimated by those... Read More

Trading Timeframes

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

Risk and Stock Trading Fees: The Two Barriers To Overcome If You Want A Successful Trading Career.

You know the old joke:"How do you make a million... Read More

A Beginner?s Guide to FOREX

FOREX is the abbreviation for the Foreign Exchange market. FOREX... Read More

Forex Currency Trading

It is possible to buy and sell money from different... Read More

Internet and Computer Systems in the FOREX Business

With every passing year the interest in electronic trading is... Read More

The Seven Most Traded Currencies in FOREX.

Currencies are traded in dollar amounts called "lots". One lot... 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

How Do Other Countries Devalue Their Currencies?

Countries devalue their currencies only when they have no other... Read More

Factors Influencing a Currency Pair Exchange Rate

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

Money Management, Part 1

There are some common mistakes I've seen traders make in... Read More