How to Manage Fear and Greed in Trading

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frustrated emotional businessman

– Revised by James StanleyNovember 24, 2021

Managing Fear and Greed in Business: Key points

  • Fear and greed are two drivers that affect our daily lives
  • These influences are transmitted to business and can be harmful
  • Traders can get rid of these drivers by looking at the big picture and planning ahead

Fear and greed are often identified as the main drivers of financial markets. This is clearly an oversimplification, yet fear and greed play an important role in the business psychology. Understanding when to embrace or tame these emotions could prove to be the difference between a successful business and a short-term business career.

Keep reading to learn more about fear and greed in business, including when these emotions are likely to arise and how best to manage them.

The truth about fear and greed while trading

“Fear and greed” can be common among retailers and can be quite damaging if not managed properly. Fear is often observed as the reluctance to enter a business or the closing of a winning business prematurely. Greed on the other hand manifests itself when traders add more capital to winning trades or over-leverage with the aim to take advantage of small moves in the market.

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

What is fear?

We know that fear is somewhat related to the combat-or-flight instinct that exists in each and every one of us. That’s what we feel when we recognize a threat. Traders experience fear when positions move against them as this poses a threat to the trading account.

Watching a position move against you appeals to the fear of realizing that loss and so traders tend to hold on to losing positions much longer than they should. In fact, this was discovered as the number one mistake traders make when DailyFX explored more than 30 million live trades to discover the Features of Successful Merchants.

fear in business

A second scenario where fear tends to get the best of traders is just before entering the market. Despite the analysis indicating a strong entry, traders may find themselves blocked by the fear of loss and end up leaving a well-thought-out trade.

Fear is often present when markets crash and traders are reluctant to buy at the bottom. In this scenario traders often decide not to enter a trade for fear that the market will fall further and miss the higher rise.

What is greed?

Greed is very different from fear, but can easily get traders into so many difficulties if not managed properly. It tends to arise when a trader decides to take advantage of a winning trade by devoting more money to the same trade, with the hope that the market will continue to move in favor of the trader.

Greed can also arise when traders experience a losing trade and decide to “double down”, in the hope that throwing more money at the problem will help the position become positive. From a risk management from this point of view this is very risky if the market continues to move against the trader and can quickly turn into a margin call.

greed in business

Greed has appeared many times in the financial markets. one such time was during the dot com where individuals bought more and more online stocks and inflated their value far before everything fell through. A more recent example is bitcoin; investors rallied into the cryptocurrency thinking it could only rise in value before it also fell.

Learn more about major financial bubbles, crises and lightning crashes.

How to manage greed and fear of being a successful marketer

There are several ways take control of your emotions and ensure fear and greed do not affect your business decisions or overall success.

1) Have Business Plan

Traders should have a business plan instead of avoiding any emotional impulses that deviate from the plan. Some eExamples of this include: overcrowding, elimination of stops on losing positions, doubling due to loss of positions.

2) Inferior Trade Sizes

“One of the easiest ways to reduce your emotions eThe effect of your business is to reduce your business size “James Stanley, DFX Currency Strategist

This was one of many good points made in our article focusing manage the emotions of a business.

In addition, the article goes on to say that putting a large business on a demo account will not result in any lost sleep as there is no real financial risk. However, traders will most likely experience stress after witnessing price swings in a large live trade. Such stress has the potential to lead to bad decisions that can negatively affect the trading account, so it is important to keep these in check.

3) Save a Business Magazine

Traders must also be responsible for themselves when trading. The best way to do this is to create a business newspaper. Business journals help traders record their trades and note what works and adjust strategies that don’t work. It’s important to get rid of all the excitement when evaluating the results of your trades and cutting out failed strategies.

If you are a forex trader, read our guide to keeping a forex trading journal.

4) Learn From Others

At DailyFX we started to find out which has worked for traders in the past so that others can benefit from those traits in the future. The result of this is the Exploring Traits of Successful Traders.

This researchshows that emotion plays an important role in business, because it was found that on average, traders lost money even though there were more lucrative trades than losing trades. This was because the losing trades outweighed winning trades i.e. traders lose more when the market went against them than they would get if the market moved in the direction of the traders.

Traders can look to deal fear and greed in business by originating the thesis of this research, stated by David Rodriguez as:

‘Traders are right more than 50% of the time, but they lose more money by losing trades than they gain by winning trades. Traders should use stops and limits to force risk / compensation ratio of 1: 1 or higher. ‘

Further reading on the psychology of business



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