Trading Psychology: How to Overcome Fear and Greed

1. What Is Trading Psychology?
2. What Are the Most Destructive Trading Emotions?
3. How to Get Over Fear?
4. How to Master Your Greed?
5. How to Manage Trading Psychology?
6. In Conclusion. What Should I Do? 

What Is Trading Psychology?

Trading psychology is associated with feelings and other psychological factors that a trader experiences when trading. These emotions determine a trader's behavior since they affect decision-making processes and actions. 

Unfortunately, negative feelings dominate. Such emotions lead you astray, forcing you to deviate from plans and goals. You start making irrational and impulsive decisions. And this causes high losses.

Say “NO” to emotions that get the best of you! It is critical to restore harmony and have a pleasant mindset to make the right decisions while you are trading.

To keep your self-control means to achieve consistency and rule the Forex market. 

What Are the Most Destructive Trading Emotions?

Perhaps, the most dangerous negative reactions are fear and greed.

They appear as a reaction to losing or winning.

These two feelings are some of the oldest. They “have hunted” us since our inception. These emotions stem from the survival instinct: 

• Rake up more food and goods, even if you do not need them
• Beware of everything and run to survive if you feel threatened

That is why you have to avoid them.

How to Get Over Fear?

When does fear appear? 

• After opening a position
• Before market entry
• When something went sideways
• If the economy is changing or turns south
• There is bad news, economic collapse/crises, or financial crashes
• When market conditions go against the trader
• If there are losses on the previous order

After such deadly scenarios, a beginner may have psychological barriers. You may get nervous, overreact, panic, or even give up. 

In this case, you will:

• Mindlessly close winning positions on the slightest changes in the market.
• Not admit a mistake that led to losses and will fight to the end, provoking even greater losses. For example, you will hold on to loss-making trades for a long time, thinking that you can catch fire.
• Be afraid to open trades due to fear of potential losses.
• Perform panic sellings and sell-offs of winning positions.
• Avoid risks and not trade large position sizes (hence the low income).
• Prefer to place high Stop Losses than make a big profit.

The pleasure of making a profit disappears under the influence of fear. Loss aversion and anxiety become constant trader’s companions. Even if the risk is rational, frightened traders will not take it.

How can you manage fear and free my clouded mind from this emotion? 

First of all, find out what you are specifically afraid of and why. How do you perceive certain events? You must know your enemy to win.

Then think about how you could calm down such a reaction. It will help to control emotion in the future. 

There are many more ways to get rid of fear, but we will discover them later. Keep reading!

How to Master Your Greed?

Greed is the obsessive desire to make tons of money and get more profits. Avarice forces traders to grab every last penny they can out of the winning trade. 

This woozy emotion causes careless and irrational decisions and actions. Greed blows your brain and destroys logic.

When does greed appear? 

• After a winning trade
• In the bullish market, while trading long positions
• When sharing skyrocketing
• On human herd instinct and race for profits

In this case, overconfidence and irresistible excitement appear. A person loses self-discipline and caution. So, it becomes easier to take a false step.

A trader:

• Invests more money and overleverage to win trades and profit.
• Doubles down on losing positions hoping that more funds will turn a minus into a plus.
• Stays in a winning position until the last tick (the failure is inevitable since the market can reverse at any time).
• Opens trade with super high risk and removes Stop Losses for the sake of big profits.
• Thoughtlessly buys shares of dubious or unverified companies just because they skyrocket.

All these may lead to large drawdowns and jeopardizing capital.

How to Manage Trading Psychology?

There are nine tips to take control of your emotions and get rid of your fear and greed.

Tip 1. Draw up a plan

Set limits, goals, and rules and follow them strictly to not trade excessively. Planning helps to get rid of emotionally-driven behavior, as well as build solid discipline. 

Tip 2. Perform risk management

Set a Risk/Reward ratio for entering and exiting trades to protect capital and your profit. Do not neglect Stop Loss and Take Profit and trail them as your order moves in your favor. 

Allocate certain funds for certain purposes. Deposit disposable money only that you are not afraid to lose!

Tip 3. Keep a trading journal 

Keeping a trading diary allows:

• Recording data about trades and system 
• Analyzing strategies’ performance (what works and what does not)
• Evaluating results
• Writing down mistakes
• Noting trading emotions to work out them and remove them in future 
• Returning to previous notes after a while to look at everything with an open mind

Thanks to all the above, you will make fewer mistakes, change your trading habits, and increase your income. 

Tip 4. Decrease position size

Why should you do this? To cut off fear and greed at the root. The smaller your positions, the lesser your fear of losses. If you win, success and profits will not turn your head. 

Tip 5. Study hard

Profit is a son of education. 

• Read and analyze trading news
• Participate in webinars
• Enroll in courses
• Interact with other traders and learn from them
• Read books and articles on this topic
• Learn market fundamentals
• Analyze your results

Knowledge helps you to scrap out emotions. For example, you will not feel fear if you know what to do in this or that case. 

Be flexible and experiment. The richer your experience, the weaker the emotional impact.

Tip 6. Contact your psychologist for help

Cannot defeat fear and greed on your own? Ally with a specialist from the trading psychology sphere. Four eyes see more than two, and two minds are better than one.

Tip 7. Trade under the right market conditions 

Charting is the best way to find out or predict market movements and trends. So, it will be much easier to make decisions. Forewarned is forearmed.

Tip 8. Use automated software and other trading tools for operating trades

Robots perform trading in an emotion-free way and save your time and nerves. Rely on algorithms and forget about stressing since trading is such an emotional roller coaster.

Tip 9. Take a chill pill and enjoy the process 

Stay calm, positive, and blow on everything in trading no matter what happens. Try to push away all the negative emotions. Take breaks to relax, walk, spend time with family, or take up a fav hobby.

In Conclusion. What Should I Do?

Yeah… Trading skills, experience, and knowledge have weight. However, the most crucial component of trading success is the positive mindset.

Do you expect long-term success? Or do you wanna end up among the losers? If you do not want your trading career to turn into a total disaster, you should manage your trading psychology.

Every trader needs a quick and unclouded mindset to make split-second decisions and performance. You should be adequate and disciplined, have high-risk tolerance, and discard all critical sentiment for this.

Do not let your mental states overweight your common sense or influence your trading decisions and behavior. Now, you know what happens when emotions get into your trading processes.