Are you venturing into share trading? If you’ve tried trading before, you might’ve already encountered various emotions, which can either be beneficial or risky for your trading portfolio. Fear and greed are two of the most common emotions a trader can feel, especially as a beginner.
So, if you already know how to trade shares, the next thing you should learn about is how to conquer fear and greed. In this article, we’ll discuss the meaning of fear and greed, their common triggers, how to overcome them, and how to balance them.
Understanding Fear in Trading
Fear in share trading includes fear of losing money, fear of missing out (FOMO), and not making informed decisions. This leads to impulsive actions like premature selling or avoiding trades. Additionally, it’s a feeling of anxiety about losing capital that often intensifies after market fluctuations. Fear can take more effort to overcome, but it can also be beneficial if handled well.
Common Triggers of Fear
- Overexposure. Investing without diversifying trades may lead to significant losses.
- Market Volatility. Market fluctuations can trigger panic and fear that your share trading strategy might not work.
- More Losses. A single loss can lower the confidence level of a trader, which may lead to more losses.
Understanding Greed in Trading
Greed, just like fear, can be destructive in trading, which leads to excessive risks, holding winning stocks for too long or chasing opportunities without any analysis. It drives the desire for more. Greed can be categorised into wanting to keep money and wanting to make more. While it can drive progress, uncontrolled greed requires a plan to manage its impact on making trading decisions.
Common Triggers of Greed
- Market Sentiment. The collective outlook of most traders and investors.
- Consecutive Wins. Winning streaks allow traders to become more confident and make impulsive decisions.
- Unrealistic Expectations. Goals should be based on thorough analysis.
Strategies to Overcome Fear and Greed
1. Set Realistic Goals
Establishing achievable goals allows traders to balance their trades. For instance, as a beginner who has enough knowledge on how to trade shares, you should set your goals based on your knowledge and other factors. If your goal is too high, it can just create unnecessary risks.
2. Create and Follow a Trading Plan
One of the most common advice for new traders is to create a trading plan. But at the same time, you should follow it. Failure to follow your plans may lead to more fear and greed instances as you don’t base your trades on a reasonable position, but rather with your feeling at the moment.
3. Discipline and Patience
Becoming a successful trader takes time. If you’re too greedy to make a profit, you might end up being afraid to trade more. If you want to overcome fear and greed, you should make decisions focusing on long-term goals, be systematic, and enter and stay in trades without hesitations.
4. Profit-Taking Strategy
Setting a profit target is a must because it can help enhance your trading skills, and helps in controlling greed since there’s a certain time when you need to exit trades. Meanwhile, holding to a position for a longer time, without any plan, in hopes of higher gains can just result in more losses.
5. Continuous Learning
Fear and greed don’t just disappear. It’s still there no matter how long you’ve been trading share. However, one of the ways to control these emotions is to keep on learning. If you’re trading skills improve, and you’re updated with the latest market situations, you should be able to handle fear and greed properly.
6. Enhance Your Skills
As a trader, there are many skills you need to learn as time goes by. You should be able to analyse and understand economic indicators and know the factors that can influence the value of shares you’re investing.
7. Risk Management
In share trading, you may encounter risks every single day. Meanwhile, there are also ways you can do to manage these risks. Some of these include diversifying of portfolio, limiting trading size, using stop-loss orders, and knowing your risks. If you know that things may lead to potential losses, you should take some time to formulate ways to conquer these risks.
8. Emotional Control
Normally, there are many factors affecting emotions. If you often trade without any brakes, it may cause trading more without thinking about your next move. One of the things you can do is to be aware of your emotions. If you know the things that may trigger greed or fear, maybe it’s time to pause, clear your mind, and recollect yourself.
Final Thoughts
Conquering fear and greed in share trading takes time, especially for beginners. The key idea is to balance them by being self-aware, having objective analysis, having a mentor or support system, and consistently reviewing and improving your strategies.
ABOUT THE AUTHOR
Aliana Baraquio has over 5 years of experience as a writer and market analyst. She specialises in developing beginner-friendly trading techniques and tutorials. Additionally, she suggests FP Markets as the top broker for trading CFDs and Forex.
