How Greed Fear And Emotions Results In Trading Losses?

| June 4, 2014

Ninety Nine percent of traders lose their whole capital in stock trading just because they don’t have control on their greed, fear and emotions. These three factors plays a great role in trading activity, these three factors force you to put your hard earned money in wrong trade and lose it within no time. No matter, how good you are in analyzing; no matter if you are getting advice from most qualified experts but if you don’t have control on your emotions, getting profit will be strange thing for you. Let me explain how Greed, Fear and Emotions make you failure in stock market trading.

Greed
Whenever you see a call from any expert on TV, Magazine or website that is giving “Big Target”. You lose your senses and convince yourself to put large sum of money in that call/trade without realizing the risk factor. You ignore any good opportunity with small profit but believe that call blindly. And this act puts you in heavy loss that you didn’t expect.
Whenever your trade is in reasonable profit, you don’t book that small reasonable profit just in hope of more. Sometimes trade reverse and you not only lose your profit but turn it in loss.
You set the targets that you have to earn this much profit every day. This type of greed force you o trade everyday even when market is not safe for trading. It again put you in unnecessary loss.

Remedies: –
Make your rules before putting step in stock trading as per your capital involved and risk tolerance. Decide in advance, how much capital you will use per trade, how much trades you initiate per day irrespective of profit or loss, how much loss you can tolerate per trade, where to place stop loss and where to book profit.
Write these rules somewhere and read it every day before seeing your terminal screen and swear to follow them strictly. It is the only way to control greed.

Fear
Fear of losing money prevents you from grasping trading opportunity. Most of the times you feel that you should buy or sell stock but you miss that opportunity because of fear.
When you realize that you done a wrong trade but still you exit in small loss, because you fear of losing your money. You wait that things will turn in your favor but it only results in more losses.
Your trade is going good but still you don’t wait for your targets and exit position cost to cost or in marginal profit. Your trade needs some time to deliver profit but your fear stopped.

Remedies: –
Trading is not for you if you have fear of losing money. Loss if a part of trading business and you can never ignore it. So same as Greed, if you have pre-decided rules and you already prepared your mind that how much you can lose and you already placed stoploss, there should not be any cause of fear.  Again, make your rules and be strict on them to overcome fear.

Emotions
Your first two trades gave you handsome profit, more than you expected.  Now, you are so excited that you initiate another trade blindly just convincing your mind that, “you earned good profit today, no problem if this trade goes in loss”. And you lose part or full earned profit here, which was not necessary.
You decided that you initiate only 2 trades a day but both of your trade were in loss. Now you are frustrated and initiate another trade blindly to cover that loss today only. But, the result is another wrong trade.

Remedies: –
Profit and Loss is a part of trade, never excite or frustrate on results. Be cool and call in both cases. Don’t decide earning targets, be strict on rules and never over-trade in excitement or frustration.
If you earned good profit today, just stop watching market and involve in other activities like watching movie, going out, listening songs, spend happy time with family or friends but forget market for that day.   And next day, forget that you earned profit yesterday and treat amount in your account as your own capital, not profit.
If you faced loss today, then also leave market and involve in other activities. Never ever trade in frustration, it always cause wrong decision.
Just do 2-3 trades a day as per your decided plan and leave market after that even if your trades are in profit or loss.

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About the Author ()

Deepak Kumar is an independent Technical Analyst, regular practitioner and Trainer of Elliott wave theory applying Elliott's Wave Principles on Indian Markets successfully since 2011 and made many accurate predictions. He is also the author of book "Practical Application of Elliott's Wave Principles by Deepak Kumar"

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