There are various emotions present in our lives. And so they appear while trading as well. One of the common emotions that you can experience is greed. And it will be the topic of today's article.
Greed influence on the trading process
Generally speaking, emotional trading would rather not bring you good results. And greed is one of these emotions that have the power to turn great trades into poor ones. But let's start from the beginning. What is greed?
Greed is an immense desire for something, including wealth. It influences your thinking process deeply and may interfere with your judgment.
This desire to reach wealth and pleasure often leads to acting as you would never have done with a calm mind. When greed appears in your trading, you may take wrong decisions such as adding capital to winning transactions, ‘doubling down' on losing positions or applying too high leverage. Such decisions may further cause big losses and even wipe your account out.
Consider the example below. It shows the GBPUSD chart with a 5-minute candle interval. A trader opens a long transaction after a long bullish candle. Unfortunately, the price falls and the trader loses. Now, greed can tell the trader to keep the position open in the hope the situation in the market will soon reverse. It can also tell him to open another long position as soon as he thinks he is seeing the signal of the change in the trend. These decisions are taken blindly and can result in a big loss.
Often, fear appears side by side with greed. Fear of failing, fear of making repetitive wrong decisions. You must gain control over them to be able to conduct successful trading.
Tips on how to take control of greed
Here comes the good news. You do not have to allow greed to influence your trading decisions. You can gain control over it and start the session with a cool mind.
What can help you to overcome greed and fear is discipline. Disciplined traders have a plan and they realise it. Thanks to it they do not fall so often into the greed trap.
The tools that are very useful if you want to work on your discipline are the trading plan and trading journal. Thanks to them you will find the strength to resist the temptation to open the trades when you really shouldn't. You will get the chance to review your past performance and take notes of what was working well and what was not. This way you can introduce adjustments to the trading strategy you are using to bring you the best results.
Moreover, to help you become a disciplined trader, you may set stop losses and profit targets before opening a transaction. It is better when your target is bigger than the risk. This is called the risk to reward ratio and is very useful when you want to improve your trading performance. Having a good risk to reward ratio, like 1 to 2 allows you to gain profits even if your winning rate is not high.
It is well known that emotional trading is not doing any good to you. On the contrary, it will disturb your thinking process and influence the decisions you make. It is essential that you learn to control greed and fear, and other emotions as well, so you start the trading session with a relaxed mind. This will strengthen your chances of carrying winning trades.
Remember, that it will not happen overnight. Dealing with greed and other emotions is a process that can only end up successfully when you persistently work on it and do not give up too fast. Realising the negative influence of greed is the first step. Now apply the above tips and start working on your success.
I advise you to read more about the emotions in trading.
Share your thoughts with us in the comments section below. Do you have your own methods to deal with greed? I would love to hear from you!
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