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.
do we know where that is on a chart? Go the Charting
page for examples. Fear is the point at
which the price stops going up and greed is the point at which it
stops going down.
In the markets, fear and greed bring out the extremes in human
behavior but this is the very ammunition a trader looks for.
It is a good thing for it provides new opportunity every single
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
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
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.
"KNOW THY SELF."
a Must Read
is a discipline with RULES - That's just the way it
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.
a sound foundation set of rules, see these pages and follow the rules:
Today's "Trader Thoughts" FREE >>
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 them 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 then 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. I
think I can safely guarantee that rule.
Remember, it is large sums of money from the mutual funds, pension
funds, banks, 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.
"Teachers open the
door... you enter by yourself."