Greed and Fear

How Emotions Affect Trading

Stock trading psychology plays a major role in successful trading. Greed and fear are the two major players in trading psychology. How to control these emotions is something that every trader must learn. If you are fearful, you might not be able to execute a trade at the right time or exit a profitable trade too early. On the other hand, if you are greedy, you may not be able to exit a profitable trade until the trend reverse and turning your winning trade into a big loss.

How to control your emotions

How to control these emotions is important and here are some tips for technical traders

1. Don鈥檛 staring at the stock price during the day 鈥?If you are holding a volatile stock and staring at the stock price all day long will drive you absolutely nuts. I used to do that all the time and it caused me to make bad trading decisions. When my stock starts falling, I got scared and ended up selling it just to found out that it moved back up the next hour. Now, I always setup a stop loss in the morning and walk away from my computer when I trade volatile stocks.

2. Follow your trading strategy 鈥?Always follow your trading strategy unless you have a very good reason not to. For example, if a trading system or method that you are using works in the past, then just follow the system until it breaks.

3. Don鈥檛 trade with scary money 鈥?If you need this money to pay rent, food or to support your kids, don鈥檛 trade until you have extra money. Trust me, you will make bad decisions when you trade with scary money. Even if you don’t make bad decisions, there is no guarantee that you will make money in the stock market, so only trade with money that you can afford to lose.