Traders and investors constantly navigate a landscape of both positive and negative emotions. For those striving for success in trading, greed often presents the most significant hurdle. The path to profitable trading and investing is typically a slow and steady one.
Greed is a powerful emotion in the trading/investing world, and it has been the downfall of many new traders. The saying, “Bulls and Bears make money; Pigs get slaughtered,” rings true – markets show no mercy to greedy traders. This is why greed is often considered more dangerous than fear. While fear might paralyze you, preserving your capital, greed compels you to act rashly. It can lead to irrational decisions like over-leveraging, over-trading, chasing markets, or holding onto losing trades.
Overcoming greed, like any worthwhile endeavor, demands effort and discipline. It requires taming your ego, and it’s a continuous process. Greed is the antithesis of discipline. Disciplined individuals, who adhere to a well-defined plan, are less likely to fall into the trap of greed. Trading plans and journals are valuable tools for staying on course and avoiding impulsive deviations.
Managing greed is not an overnight fix; it requires consistent practice and dedication. The strategies that follow can help you navigate this challenging aspect of trading.
Trading with a Plan
To control the detrimental effects of greed, develop a clearly defined trading plan, ideally written down. Keep this plan readily accessible and review it before every trade. A well-defined plan ensures you know exactly what entry criteria to look for. Don’t compromise; wait for the precise entry signal outlined in your plan. Let the market come to you; avoid chasing trades out of fear of missing out.
Apply Your Risk Management Strategy to Each Trade
This is where greed often takes over. Traders are frequently tempted to use high leverage and invest large sums, hoping for outsized returns. They want massive profits with small accounts, which is extremely risky. Implement robust risk management strategies before every trade, and make this a consistent practice to see a significant difference in your trading results.
Avoid Overtrading
Overtrading often stems from greed. Stick to your trading plan, and recognize that if you’re experiencing excitement from excessive trading, you’re not trading—you’re gambling. Greed is a major obstacle in trading; overcoming it requires discipline, a sound mindset, and strong self-control. Remember, longevity in trading is only achievable through patience and discipline.