Controlling Greed and Fear to Become a Successful Trader

Fear and greed are often recognized as the main drivers of financial markets. This is clearly an oversimplification, but fear and greed play an important role in trading psychology. Understanding when to embrace or tame these emotions can be the difference between successful trading and a short-lived trading career.

Fear and greed can be commonplace among traders and can be very destructive if not managed properly. Fear is often observed as a reluctance to enter a trade or closing a winning trade prematurely. Greed on the other hand manifests when traders add more capital to win trades or excessive leverage with the aim of profiting from small movements in the market.

There are many traces of the origins of these two drivers, but when analyzed logically, both greed and fear stem from the innate human instinct for survival.

How to Control Greed and Fear to Become a Successful Trader

There are several ways to control a trader's emotions and ensure that fear and greed do not affect trading decisions or the trader's overall success.

1. Have a Trading Plan

Traders must have a trading plan to avoid emotional impulses that deviate from the plan. Some examples include: overleveraging, removing stops on losing positions, doubling on losing positions.

2. Lower Trading Size

This is one of the many good points made in our article that focuses on managing trading emotions.

Furthermore, the article goes on to state that placing large trades on a demo account will not result in lost sleep, as there is no actual financial risk. However, traders are bound to experience stress after witnessing price swings on large live trades. Such stress can potentially lead to bad decisions that can have a negative impact on a trading account, so it's important to keep this in check.

3. Maintain a Trading Journal

Traders must also be responsible for themselves when trading. The best way to do this is to keep a trading journal. Trading journals help traders to record traders' trades and record what works and correct strategies that fail. It is important to remove all emotions when evaluating a trader's trading results and stop strategies that do not work.

4. Learn From Others

Research shows that emotions play an important role in trading, as it was found that the average trader loses money even though there are traders who make profits compared to those who lose. This is because losing trades outweigh winning trades, i.e. more traders hold on to losing trades when the market is against them than they would if the market moved in the direction of the trader.



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