How to combat Fear and Greed?

Fear and Greed can be the death of a trader. It is a common mistake that many amateur and some professional traders will make. How many of you have bought a stock at $90 watched it go down to $87 got scared sold it and watched it go to $120.

When you did this you were experiencing fear. You became scared that your loss would become a bigger loss, so you got out. Now I know it may be hard to stay in a trade after your stock has dropped but unless your rules tell you otherwise you must stay in. Once you are in a trade you should not get out unless your rules have been broken, ie; broke through support or hit your stop loss.

If you know you will get scared if you lose even a penny don’t trade. If you are trading and your stock has came down to barely above your stop stay in. If you have a hard time with that, get away from the computer. Take a walk and forget about it. A very successful trader once told me every time they trade they pretend like they are trading with someone else’s money. That way you can take the emotions out of trading.

So you know how to handle the fear down, how about the greed? Here is another scenario. How many times have you bought a stock that went from $50 to $80 real fast? You hit your target but still stayed in it. You know it can go higher. You just want 10 more points. Its already gone up this much what’s 10 more points? Then your stock heads down, way down and goes to $30. Owe, should have got out once it hit your target.

So, how do you combat fear and greed? The best thing to do is to have a well tested system and have faith in it. Once you know your system works just do it. Be a robot for a few minutes while you make trading decisions.

Emotions have no place in a professional trading system. Your trading will be infinitely better once you can say I made $20,000 this month without thinking twice about it.