The ability to control your emotions lies at the basis of your expertise as a trader. If a trader falls prey to their emotions, they lose control over their trading. This means breaking the rules of your trading system and, as a rule, ends in losing your money.
In this overview, we will discuss what is greed in Forex and how to beat it.
How does greed appear?
Many people start trading in the hope they will get rich in a short time. This misjudgment is supported by fantastic stories of success spread by the media. You might have heard of a young trader from the US Timothy Sykes who started trading in high school and earned his first million by the age of 21. Sounds amazing, doesn't it?
However, many neglect the fact that Sykes achieved this by long and painful training, making mistakes, losing money, but perfecting his strategy, and coping with his emotions. Experiences traders know that trading provokes the strongest human feelings and passions that you need to bring under control. A bright example is greed that can lead to losses and depression if you let it rule.
Greed is an unstoppable desire to own more and more fortune. Some might say that this is all personal, and there is nothing reproachable in the craving for more. However, greed is usually accompanied by unrealistic expectations and hopes, and a lack of self-control. This becomes a large stumbling rock in the trader's way to success because they start breaking their trading rules, which leads to losses.
Also, greed increases stress and nervousness that nag on the trader throughout their work. This is a direct way to exhaustion that makes it difficult to think rationally about trading in financial markets altogether. Hence, you need to know how to detect greed in the early stages and fight.
Main symptoms of greed
Let us have a look at the main symptoms that signal the advent of greed.
- Unrealistic expectations
Ambitions are great when they are rational. However, when it comes to money, one's common sense often loses the battle to greed, especially if the first couple of trades was a success. Trading on a demo account, which is where most traders start from, is peculiar in the sense that there is no psychological barrier in it — the money is not real. On a demo account, trading is fun.
That is why many over-ambitious traders rush at switching to a real account. They think that if they made it on a demo, real trading will also go smoothly, so why to waste your time on sheer practice. Their expectations are too high, they imagine how they become millionaires in a week. However, real trading quickly sobers them, but the lack of due preparation and money-management skills leads to losses.
- Poorly based hopes
A poorly based hope for a profit must in no way be the moving force for a trader. Such hopes, having no real support, lead to increased risks. This feeling is characteristic mostly of beginners, who hope that their trades will for sure bring them a profit if they wait for a little.
A classic example: a trader opened a trade and waits for the price of the asset to reach the desired level. But the market goes another way, and the trader obediently watches their deposit melt. Nonetheless, they do not close the position hoping that the market will soon reverse in their direction. This does happen sometimes but most often, this hope never comes true, and the trader suffers a serious loss.
- No self-control
A trader that has lost control over themselves cannot work calmly and positively. They do not wait for a good time to do something but instead, they rush at more and more chaotic trades, ignoring obvious signs of bad trading. A desire to play back the losses from several bad trades is a characteristic feature of lost self-control.
Another widespread mistake of active traders is the desire to make even more money after a series of successful trades. The trader realizes that their risk is imprudent but their good luck makes them bold, almost feeling the profit in their hands. Fake success blinds them, the trader takes their actions less critically, chasing new profits, and instead of winning, they lose.
Ways to control greed
To control your greed and prevent it from harming your trading, you have several proven methods:
- Stick to your trading rules
The main instrument that helps traders beat greed is a reliable trading system. The latter is a set of certain rules that trading is based on. If a trader sticks to the rules, their greed is under control. They make trades based on clear signals, not the dream to become rich.
- Track your emotional state
You must always know what and why you are feeling. If you feel that you have lost emotional balance, pause for a while. It will be wise to stay away from the market for a short while after a series of losing or profitable trades. Such series can provoke strong emotions that might harm your trading. Hence, you should stop and calm down before carrying on with your work in your normal balanced state of mind.
- Control your risks
Risk control is an intrinsic part of trading. Money management is a way to manage your capital by a certain risk control pattern. In other words, this is a way to choose the part or share of your assets that you are ready to risk in each trade. Wise risk control helps you protect your deposit from greed and other emotions.
- Use pending orders
The use of pending Stop Loss and Take Profit orders decreases the influence of greed on your trading. A Stop Loss limits losses (and protects the profit) when the market turns against the trader. A Take Profit will lock in your profit when the price reaches the specified value. This order helps to close a trade in time near the levels from which the price might correct or reverse.
- Keep a trading diary
A trading diary is a trading plan and the ways of bringing it to life written down on paper or the computer. In the diary, you write down all of your planned trades and describe them: why you are entering the position, where you place an SL, where and when you will take the profit, what your emotional state is. When the trades are closed, you write down the result and check the statistics. A trading diary will show you if greed influences your trading.
Greed frequently harms trading in financial markets. Uncontrolled greed makes you violate your trading rules and might lead to serious losses. Hence, you need to detect the symptoms of greed accurately and use proven ways of beating it.