Fear and Greed are two of the emotions that traders and investors know
best. You have often heard that these are the emotions that drive the
market. The Greed of missing out on the market going higher causes
people to buy in at the top of a
run thus keeping it going higher and higher until there are no more
fools to buy. The fear of the pain of losing causes people to cut their
losses and sell at the bottom thus causing the drop to continue to
drop. The pundits explain this on CNBC on a regular basis. This is the
driving force behind the market cycles. If the market was 100%
efficient and companies were valued at their fair value then there
would be no traders and we would all be investors enjoying the returns
of an expanding or receding economy. The professional trader takes
advantage of this and capitalizes on the emotions of others.
So how do we
become that professional trader when we have these strong emotions of
Fear and Greed pulling at us every day?
Most of us were
drawn into this field due to the lure of easy money. We bought stocks
and they went up. Any fool could do this and we knew we were smarter
So after reading
a book and checking out a few websites you’re ready. With real
charts and an execution system where you can buy on the Bid and sell on
the Ask, just like the professionals, nothing could stop you! After a
little paper trading you are rich. Ready to live the life of your
Things go along
well for awhile. You expect to lose a little as that is part of the
learning curve, and you did. Then the perfect setup happens. It meets
all your criteria. Back up the dump truck. Buy, Buy, Buy! You are going
to make a killing!
Then the trade
turns against you.
give it a little room to work out…” you tell yourself. And
at the first price then you have got to love it now. Buy more.”
Yet it keeps
dropping. Now the pain is mounting. Each day it gets worse. But others
on the message boards were hanging in and so could you.
At some point,
maybe after a few sleepless nights, or after your significant other
berates you for losing 'their' money, the pain becomes too much and you
get out, asking yourself “How could I have been so stupid?“
let this happen again” is now firmly in place. From this point
the “never” fear is locked in. Once a trade starts to go
the “never” fear raises its’ head ever so slightly.
You start to feel
uncomfortable, pressured. You begin the deep descent down into the
morass of doubt, “Maybe it wasn’t such a good setup after
“Better get out while I can.”
When a trade goes
in your favor there is that great feeling of being right. Yes, it
worked! I was right. Then the pressure that it could turn against you
starts to build, and with it comes the litany of “Better get out
you can”, or “You can’t go broke taking
profits.” The pleasure of
winning is never as strong as the pain of losing. Now, at best, your
judgment is clouded so you are no longer able to see the trade
objectively. It is filtered through your emotions.
If this continues
it is just a matter of time until you stop trading and move on. It's
happened to thousands of people in one form or another. And yet
professionals keep taking in money day after day!
At Trading From Main Street we, as professionals, are well
aware of this problem. We address it on a regular basis. Find out how
Toni Hansen can help you progress to the next level of your trading
career by contacting