How do I overcome fear and greed emotions?
Both emotions are not necessarily bad. It becomes negative when it paralyses the trader or makes him incapable of functioning rationally. But that can be overcome by using certain techniques.
Irresponsible and uninformed trading lead to despair
- Plan to win but prepare to lose.
- Trade small – smaller than you can afford.
- Use a stop-loss – it ensures that your potential loss is below your emotional tolerance levels.
- Trade only with money you can afford to lose. Which implies that you should not trade to make grocery money.
- Follow your trading plan to the letter – do not deviate.
- Watch your language – words have emotional content and your words trigger your brain to react in a specific way.
- Embed it in your belief system that there is always another trade.
- Your broker should have a smart stop or maximum draw-down facility which will close all your positions automatically when you lose a pre-arranged percentage of your portfolio. I put mine at 50% of portfolio for that improbable event that I suffer a heart attack or am involved in an accident and cannot attend to my open positions. My stop-loss should take care of it. This is just to provide for any unforeseen events – and to protect you against your own emotions getting the better of you.
- Act in the moment (mindfulness). Be aware of your surroundings and what you are busy with. One way of ensuring you act in the moment is to question everything you do. Why do I pick this SL, why this TP, why enter here, why trade this pair? Answering questions helps you focus. If you question yourself, you make sure that your mind does not wander and that you think about something unrelated to what you are busy with.