Fear and greed are a nuisance. They are one of the biggest enemies of trading. They wreak havoc when you are either complacent or naive. Why is it scammers always succeed?
Here are a handful of ways to overcome these deadly emotions or at least identify them to protect ourselves.
You can get to know yourself better through observing others, reflecting, reading, and coaching. Every one of us have blind spots which are glaringly clear to others. Yet, we can remain ignorant about them.
Knowing your temperament and risk appetite will go a long way in helping you find out the triggers that cause you to feel fearful or greedy. It could be an overnight rise of 5% on a stock which you own or an exponential increase in prices that led you to double your number of shares in hope to double your account. You don’t want to miss out.
Know your stock
Studying the chart pattern of the stock that you have shortlisted is a must. It will speak to you. This requires education and experience.
There are several oscillators to help you get acquainted to the stock you are looking to own or short sell. I use the Percent Change and C50D (a proprietary oscillator by Jay) to find out a stock’s usual trading range and its limits.
I check for the stock’s seasonality to lower my risk as well. After all, trading is a business.
Adopt a business owner’s mindset
No business like to bleed cash. Why should yours be different?
Yes, there will be occasional losses. This is perfectly fine if we are taking measured risks.
Dr Alexander Elder says it best, “The answer is to draw a line between a businessman’s risk and a loss. As traders, we always take businessman’s risks, but we may never take a loss greater than the predetermined risk.”
I must admit that this fight is tough. There will be times where I would make a decent amount, only to “donate” it back. Let us press on!
Swim Trading Resident Columnist