Trading Psychology – Fear and Greed

A trader should maintain a right psychology with emotional outlook. Without the right psychology, the trader’s emotions will have big impact on his trading and may even prevent him from doing trading. The two emotions traders may experience often are fear and greed.

Fear is the emotion that will cause you to close a trade prematurely without giving it a chance to be profitable, whereas greed will cause you to make more trades that are too large or too risky to make huge gains. Fear is mainly seen in a day trading, where the trader is afraid of losing a trade or losing money. Greed is exactly opposite emotion to fear, in this context the trader gets motivated with the strongly moving upward markets and get tempted to make random trades or hold on to positions longer even though their trading system says not to make.

Trading psychology says that if a trader is not psychologically prepared to trade, then it means that he is not prepared to accept financial risk for which he has no control over the outcome. This certainly becomes dangerous and the outcome of this course is obviously fear which causes him to stop doing the next trade.

Both these emotions can be overcome by following the trading systems correctly. It helps in making profits by not involving in every potential trade with the emotion of greed. The emotion of fear can also be overcome by covering the previous loss by participating in the next winning trade.

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