Overcoming Fear and Greed

Overcoming Fear and Greed

We all have to deal with our runaway emotions at various times in life, and these emotions really begin to run away when we trade. Trading is the clearest window into your own personal psychology, clearer than any other endeavor. Let’s begin with the markets themselves, and with fear and greed. We have all heard the cliches about fear and greed. They rule the markets. In fact, that’s all the markets are—a reflection of these emotions. In order to make money trading, you
must learn to control your fear and greed.

We give in to our greed when we take a profit early, before the regular signal, because we don’t want to give back any of the profits. We give in to our greed when we trade more contracts or shares than we normally would because we feel good about this trade.  Overcoming Fear and Greed is how we understand the markets. If we
understand how they work, we can get a better understanding of ourselves, and in turn be better traders.

Controlling greed takes discipline.  Explained in the Market Profile that markets exist for one purpose and one purpose only—they exist to facilitate trade. Facilitating trade means that the markets will do anything they can to get individuals to participate in the market. How they do this is through movement. Markets move up and down searching for buyers and sellers.

Overcoming Fear and Greed

The crucial point here is that markets must move for their survival. Understanding this literally changed the way I thought about the markets. Think about it. Markets have to move! This concept is major for anyone who has had to sit through a trend-following strategy trading in a sideways market. The knowledge that the market has to move eventually changes the way you look at trading. It gives you confidence that the string of losses can’t continue indefinitely. It eliminates the fear!

Knowing that a market must facilitate trade and move, or else die, has given me great confidence in trading. When I am forced to trade through quiet markets, I
remember this principle. This principle has reduced my fear and increased my confidence immeasurably.

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