We face multiple emotions in trading that can become the toughest obstacles in making our goals a reality. Fear and greed are two of them. Fear and greed are considered the main drivers of the financial market as they play a quite important role in trading psychology. So, it is more important to learn that how can these two emotions can be managed and controlled as this can prove the difference between a short-lived trading career and a successful one.
Fear and greed can prove to be damaging if you do not manage them properly in time. Normally, fear comes as a hinder when one finds a reluctance to enter or exit a trade in a premature manner. Whereas, greed makes it way when trader adds more and more capital in order to win the trade or overleverage for making a profit from small moves and result in crashing down.
There are several effective ways that can be used to manage your emotions and keep you on track. It is important to make sure that fear and greed do not influence your trade in a bad way.
Hold on to your Winner and Cut the Loser Quickly
If you want to become a successful trader, you need to know that naturally, markets are counter-intuitive. You must learn how you can consciously keep aside your emotions while making the investment decisions. This can clearly help you to cut your losses and keep up with your winners.
The basic emotional triggers way of work is when a stock is bought at 30 and goes to 33, some traders fear that they will lose the profits and they quickly sell to lock up the gain. On the other hand, if one buys the stock at 30 and it falls to 25, it makes the one greedy to hope it to get out and break-even.
A successful trader is wise enough to hold on the winner and cut the loser on a quick basis.
Don’t Forget to have an Exit Strategy
Before buying a stock, you must have an exit strategy with you. As in case of any situation, you must be ready to face. Market situations fluctuate and can make you forced to leave, that’s when your strategy will help you. Think ahead of time to have a plan if some time market turns against you.
Create a Plan First, then Trade
For being a successful trader, you must have a trading plan in order to avoid any kind of emotional desires that may deviate you from the plan. You must get ready to face anything and plan how much you are going to lose and at what point you will exit if wrong. Once you have the plan, all you need to do is to trade it.
Profits are a Function of Time
Your patience is very important, as it can give way to fear and greed to prevail and can affect your trade. Taking small losses is inevitable and you should understand this. Don’t overlook your losses with impatience and give it time.
Trading involves emotions that can be destructive for its success. So, it is important that a person has enough knowledge that how to cope with these emotions including fear and greed. Having proper planning and strategies along with patience and cool temperament, one can become a successful trader.