Emotions in Trading: Part 3

How is it going, fellow traders? It’s time to get back to emotions in trading. Let’s identify them in ourselves and turn them into our allies because they can work against us unless we approach and cope with them consciously.

This post touches on greed as an equally strong emotion. I have to admit right off the bat that it’s not always easy to identify this emotion. But the thing is that all traders experience it, and until it remains hidden in your unconscious storage, it works against you, contributing to losses. For that reason, you want to track how it manifests itself and make it work for you.

I’ll share only my hands-on experience, and I’m sure it’ll be useful for many. It’s no surprise that psychologists say, “The most personal thing is the most common thing.” The reason behind that is simple: we humans have the same basic setup and often do the same things in critical situations.

I’ve noticed that greed often works in tandem with either fear or an inclination to prove “I’m right.” How does greed manifest itself?

-???????Trades in hot pursuit

Trades like that happen when you miss your entry point, and the price comes closer to the target. You regret missing out on your potential profit and thereby enter the trade at worse prices to save the day.

What does it lead to? Unreasonably higher risks and lower stop-loss or take-profit levels you won’t be happy with. How to handle all that? Before situations like that happen, you want to set the extreme stop-loss and take-profit levels, at which you can still enter trades.

If you exceed this threshold, you DON’T enter That’s it. This rule must be included in your trading strategy. In my humble opinion, the extreme ratio could be SL:TP=1:1. It’s the line beyond which trades are generally pointless. So, that’s why it’s better to have a higher ratio.

-???????Take-profit orders and maximum targets

Have you ever encountered situations when the price matches your forecast but literally lacks a couple of pips to reach the take-profit order and then move in the opposite direction? As a result, you lose your profit and often exit the trade using a stop-loss order. If this happens often, you want to set greed-proof stop-loss orders a little short of the predicted target. Some traders call this “leaving a tip for the market.”

-???????Insufficient stop-loss levels

Trades like that happen when you set lower stop-loss orders, focusing on money rather than on the chart, which ultimately violates your rules (previous extremum, shadows, etc.). I believe that stop-loss orders should meet market requirements. And if you can’t afford these risks, skip this trade. If you set stop-loss orders at random rather than being guided by the technical circumstances, you risk being stopped out, and then the price will go in your direction.

Stay tuned for my upcoming posts, and next time we’ll keep talking about greed.

To be continued…