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Fear and Greed

It's real and it moves markets every minute of every day.

It works in your favor if you know how to take advantage of it.
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Fear and greed is as much as 90% of what trading is all about.
enroll here

     Stock market trading is motivated by two well-defined human phenomena known as nothing less powerful than Fear and Greed.  Do you understand why you and others are fearful or greedy?  Traders, money managers, trading coaches & mentors trade on those emotions, which can be seen in the charts.

     Trading is understanding your own fear and greed as well as identifying it in others. We can see it all in the charts and thus recognize odds and probability.

     Stock market trading is just another human endeavor.  It is an activity controlled by human emotions.  Fear of missing out, fear of losing; greed with a winner, greed holding too long.  Even if you consider programmed computer-trading, humans inputting their fear and greed do the programming.  It is inescapable.

     So for market trading, let's start calling Fear- "Resistance," and Greed will be called "Support" on our charts.  How do we know where that is on a chart?  Go the Charting page for examples. 

     In the markets, fear and greed bring out the extremes in human behavior, yet this is the very ammunition a trader looks for.  It is a good thing. It provides new opportunity every single day.

       All traders are watching their screens and they think the same thoughts as they watch the minute or five minute bars add on to each other forming new patterns.  There is always the fear of getting into a trade, the fear of missing a trade, the fear of getting in/out too early or too late, the fear of losing, the fear of being at risk.  Fear of failure.  Fear of success.  There are other subtle fears at play as well.  

      There is the greed that comes with anticipation or expectations (real or hyped up in your own mind); the greed that comes with having a winner on your hands and staying with it for that last .25 cents;  the greed that is supported with news, rumors, internet chatter, the greed that comes from a gambler's perspective ...bigger bet/bigger reward.  How about the greed of feeding your ego ("I know I'm right")?  There are other subtle variations of greed at play as well.  Amateur market participants trade on emotions, traders trade on discipline taking advantage of that situation.  

     Much has been written about fear and greed in the market and  what can be said on either side will be true for the most part and somehow contradictory simultaneously.  These truisms and contradictions make for the volatility in the price action.  It is a phenomenon that can only be observed and participated in to be fully appreciated.  But after all is said and done, this is what trading is all about...master yourself (see below), your emotions, first- then you can join the crowd with serious money- but not until then.

     So the question becomes, how well do you know yourself as an investor, as a trader, as a risk taker?  This question, in my opinion, is one that will be answered over time, by allowing yourself to evolve into a trader type, i.e., aggressive, conservative, swing, position, etc., over time.  I feel you are doing yourself a disservice if you adamantly approach trading, never having traded before, as a conservative or aggressive trader.  Let the real world and your experiences guide you in that regard.  You may find months from now that you are trading very differently from what you thought you were going to do.  

 If you were to set out to go into business, presumably you would have no fear.  You may have doubts but you would not call it fear, otherwise you wouldn't do it.  Fear is too crippling a word to use in preparation for going into business or trading.  In addition, trading is a business and should be treated as such.  It is a business involving: 1. Training,  2. Controlled behavior, self-control.  3. Control obtained by enforcing trading executions for entry and exit strategies,  4. Submission to rules and authority (the markets are always right).  5. There are rules and guidelines.  The reason traders use stop-loss orders, for example, is because they work.  Gaps notwithstanding, stops are the best way to take you and your emotions out of a trade.  Use stops.  The one time you lose because you did not use a stop is the lesson you will have taught yourself to do so.  Let your stops do the work while you search for new trades.  

     Discipline is what will make you take a profit at the right time, get out with a small loss at the right time, wait for the right entry point or perhaps not trade at all.  When you can walk away from a trade where you left money on the table or you saved yourself a bundle or you missed a big, big move without whining about it, you're on your way to self-control.  This is just so incredibly important and the way to master this is to focus on not losing instead of focusing on the potential profit.  Let me repeat that:  focus on not losing rather than the potential profit.  Take care of your funds, your asset base, remember, it's the commodity of your trading business.  No money, no trading, no business.  Profits will follow if you at least follow this rule regarding money management.  

     Remember, it is large sums of money from the mutual funds, pension funds, banks, hedge funds, and money managers that drive the markets. They too operate in this environment.  Are they immune from emotions?  Does their job performance depend on their portfolio's performance?  Don't they have to answer to their board of directors, their shareholders?  The elements of fear and greed are alive and well for all players.   

"KNOW THYSELF." a Must Read >> Manage your fear!

Trading is a discipline with RULES That's just the way it is.
Go against them at your own peril, it's that simple.

We don't like rules but usually we adhere to rules because they provide either safety or order.

 
For a sound foundation set of rules, see these pages and follow the rules:  here and here.  

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