Emotions accompany us all the time. Including in trading. There are so many different emotions that can appear and one of the more popular examples is greed. Let’s take a closer look at it.
Key Takeaways🔑
| →Greed can negatively impact your trading decisions and lead to poor outcomes. |
| →Discipline and following a trading plan can help control emotions like greed. |
| →Keeping a trading journal and setting stop loss and take profit levels are effective risk management strategies. |
Contents
How greed affects your trading
Greed is an emotion that can be described as having a huge craving for something, also wealth. It affects the decision-making process. Your judgment can be disturbed and even good trades can turn into bad ones.
You may find yourself entering the transactions you would have not open if trading with tranquillity. You can, for example, feel the need to ‘double down’ on losing trades, to add capital to winning positions or to use extensive leverage. Such choices can cost you a lot of money. They may even clear your trading account completely.
Take a look at the picture below. Trader thought that Bitcoin will not cross the psychological price level of $20.000 per coin. So the idea was to sell at that level. But the price went further and that short position is a losing one. When greed is taking over logical thinking you might want to sell again at a higher price, let’s say 25.000. And again at 30.000. And now instead of one losing position (which by the way should be closed much earlier) you have three! Your account is almost empty and your mood… Just imagine that.
Greed is not the only emotion that can lead to bad decisions. Fear often follows greed. You may be afraid of failure, of making wrong moves continuously. And this is why it is so important to take control over your emotions and begin a trading session with a clear mind.
Taking control over unwanted emotions
Emotions appear constantly but you do not need to be their prisoner. You can take your trading into your own hands and control greed.
One skill that will help you to do that is being disciplined. A disciplined trader has a plan. And following a trading plan support you in not falling into traps that greed builds.
You can work on discipline by preparing your own trading plan. Stick to it and you will discover the power within yourself to withstand the urge to enter trades that are not good at all.
Keep a trading journal as well. By reviewing and analysing the past transactions you will be able to decide what serves you. You will be able to leave what does not. Adjust your strategy accordingly and improve trading performance.
Use the option to set a stop loss and take profit whenever possible. It will protect your account balance against excessive losses. Determine what is the best level for a stop loss before you enter a trade.
Also, think about your reward to risk ratio. The target should be higher than the risk you take. With the reward to risk ratio around 2 or 3, you will be able to profit even with a low winning rate.
Pros and Cons of Managing Greed in Trading 📈📉
Consider the advantages and disadvantages of managing greed in trading:
👍 Pros:
- Improved decision-making and reduced impulsive trading
- Better adherence to trading plans and strategies
- Enhanced risk management and protection of account balance
👎 Cons:
- Emotional challenges in overcoming greed and other negative emotions
- Requires discipline and self-control to consistently manage emotions
- Not a foolproof solution and can still be influenced by external factors
Comparison of Emotional Trading Management Strategies 📊
| Aspect | Managing Greed | Other Emotional Trading Strategies |
|---|---|---|
| Effectiveness | ⭐⭐⭐⭐ | ⭐⭐⭐ |
| Ease of Implementation | ⭐⭐⭐ | ⭐⭐⭐ |
| Long-Term Impact | ✅ | ✅ |
Summary
Be aware of the fact that emotional trading does not help you to get good results. It influences the decision-making process and you cannot think clearly. Whenever you feel the emotions are overwhelming you, back off, take a break. Check with your trading plan and look at the trading journal. Analyse it peacefully and come back when you feel you are in control.
Keep learning how to become a disciplined trader and the chances to become successful will significantly increase.
Be prepared it will take some time. Do not resign and be persistent. Some need more time than the others but it is possible to gain control over greed and other emotions.
You can practice trading with new indicators and strategies in the Olymp Trade demo account. It is supplied with virtual cash so there is no risk component. This way you will be able to check how the indicators or strategies work with a calm mind. Once you get to know them you will be more confident and less prone to emotional trading. Move to the Olymp Trade real account when you feel ready for this.
Describe in the comments section below how you deal with emotions. Has greed ever interfere with your trading?
Wish you great trading performance!
Q&A on Managing Greed in Trading 🙋♂️
Here are some frequently asked questions about managing greed in trading:
- Q: Can managing greed alone guarantee profitable trades?
- A: Managing greed is essential for successful trading, but it should be combined with other key factors like sound technical analysis, risk management, and knowledge of market dynamics.
- Q: How can I develop discipline in my trading approach?
- A: Developing discipline requires creating and following a well-defined trading plan, practicing patience, and continuously evaluating and improving your trading strategies.
- Q: Can using risk management techniques help in controlling greed?
- A: Yes, implementing risk management techniques like setting stop loss and take profit levels can help limit potential losses and prevent the temptation to hold onto losing positions out of greed.
- Q: Are there any psychological tips to overcome greed?
- A: Psychological techniques such as meditation, mindfulness, and keeping a positive mindset can assist in overcoming greed and maintaining emotional balance during trading.
- Q: Can practicing in a demo account help in managing emotions?
- A: Yes, practicing in a demo account allows you to experience the emotional aspects of trading without risking real money. It helps in developing self-control and emotional resilience.