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Top Four Triggers of Fear and Greed

Top Four Triggers of Fear and Greed
July 26
17:11 2012

Common knowledge of trader psychology teaches that individuals should avoid trading with their emotions. This is because human emotions are inherently unstable and successful day trading requires a stable mind. To help traders get a better understanding of this concept outlined below are the top four triggers of fear and greed.

Triggers of Greed

1. Desire to make more money. Keyword here is “more” which implies that the trader has tasted success already. Just because a trader wants to make more money doesn’t mean that the market is producing the kind of results that will allow this to happen.

2. Competing with others. Competition drives people to do all kinds of crazy things but it can be fatal to a trading career. Trading is not about competing with others it is more about mastering self by setting and achieving realistic goals.

3. Revenge trading. Traders often face a situation where the market takes their money and they feel the desire to take revenge by getting the money back. This is faulty thinking on two levels. One, losing is part of the game. Traders should expect that they are going to win some and lose some; this is not something that should be taken personally. Two, getting the money back is the wrong perspective because the market conditions are changing minute by minute and a trader is betting with or against different market makers all the time.

4. Too many signals. This is a common trap for traders who utilize technical indicators as part of their trading strategy. Traders often go overboard with their use of these tools and crowd their charts with too many indicators which in turn lead to an abundance of trading signals. When traders are constantly seeing “green lights” this will cause them to take impulsive trades out of greed.

Triggers of Fear

1. Don’t want to lose more money. Like the first trigger of greed, fear is triggered when people have already experienced loss. Traders can become paralyzed by fear and are unable to take another risk by getting into the market again. The problem with this is that trading is a contact sport; nothing is accomplished by sitting on the sidelines.

2. Market moving too fast. There are times when the volatility of the market picks up and the price gains momentum. During these times traders may become intimidated by how fast the price is moving and refuse to enter the market.

3. Avoiding risk. Traders often become overly cautious about risk and will delay entering into the market. This might be incorrectly perceived as being good risk management but the truth is that this is not managing risk but avoiding risk altogether. Risk avoidance is not good practice and will never allow a trader to develop the necessary skills to becoming profitable.

4. Over analysis. Technical analysis and fundamental analysis are tools to help traders understand the market and gain reasonable predictions about its future direction. However, traders often get bogged down with loads information and become unable to make a decision. This indecision is paralyzing and will cause traders to miss good trading opportunities.

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