Trading-Psychology: Fear & Greed
Fear & Greed
Trading psychology is different for each trader, and it is influenced by the trader’s emotions and biases. The two main emotions that are likely to impact the success or failure of a trade are greed or fear.
Greed is defined as the excessive desire for profits that could affect the rationality and judgment of a trader. A greed-inspired trade may involve buying stocks of untested companies because they are on the rise or buying shares of a company without understanding the underlying investment.
Greed can also make a trader stay in a position for too long in an attempt to squeeze every event out of the trade. It is common at the end of a bull market when traders attempt to take on risky and speculative positions to profit from the market movements.
On the other hand, fear is the opposite of greed and the reason why people exit a trade prematurely or refrain from taking on risky positions due to concerns of incurring losses. Fear makes investors act irrationally as they rush to exit the trade. It is common during bear markets, and it is characterized by significant selloffs from panic-selling.
Fear and greed play an important role in a trader’s overall strategy and understanding how to control the emotions is essential in becoming a successful trader.
Trading psychology is different for each trader, and it is influenced by the trader’s emotions and biases. The two main emotions that are likely to impact the success or failure of a trade are greed or fear.
Greed is defined as the excessive desire for profits that could affect the rationality and judgment of a trader. A greed-inspired trade may involve buying stocks of untested companies because they are on the rise or buying shares of a company without understanding the underlying investment.
Greed can also make a trader stay in a position for too long in an attempt to squeeze every event out of the trade. It is common at the end of a bull market when traders attempt to take on risky and speculative positions to profit from the market movements.
On the other hand, fear is the opposite of greed and the reason why people exit a trade prematurely or refrain from taking on risky positions due to concerns of incurring losses. Fear makes investors act irrationally as they rush to exit the trade. It is common during bear markets, and it is characterized by significant selloffs from panic-selling.
Fear and greed play an important role in a trader’s overall strategy and understanding how to control the emotions is essential in becoming a successful trader.
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