Greed / Fear / Hope / Revenge Trading:  A venom for traders?

Have you ever wondered how lawyers and doctors shine in their respective fields? 

They excel because they follow strict Standard Operating Procedures. You may notice that sometimes doctors and lawyers decline to attend a case. It’s because, according to their planned procedures, the chance of success might be absent.

If so, then why is a trader ignoring these mandatory procedures? If you consider trading as a business, then follow the plans strictly. By doing so, you will be able to generate wealth and reward yourself for following your trading system.

Greed, Fear, Hope, and Revenge trading – these are the biggest enemies and risky challenges faced by every trader in the early stages of his/her trading journey.  Because of this, so many traders blow their capital.

Some are lucky to identify the core issue and will correct and restart their trading journey, but some drop out in the middle of their journey, unfortunately.

Do you think – “I could have a bit more profit even after reaching the planned target?”

It shows Greed. When greed attacks, traders overleverage,  ignore planned target levels, and chase trades.

You can solve this issue by following a few mandatory steps:

1. 1. Pre-plan exits and define your target and stop-loss before entering the trade.

1. 1. Book partial profits.

1. 1. Fix daily or weekly, or monthly targets of profits and losses.

1. 1. Use a Trading Journal.

Do you hesitate to enter a trade even if it fulfills all conditions as per the system?

It shows Fear. When fear attacks, traders hesitate to initiate a potential trade or exit from a winning trade too soon, and avoid setups.

Fear may arise when you are bothered about previous losses and lack confidence.

You can solve this issue by following a few mandatory steps:

1. 1. Calculate and fix your position size.

1. 1. Do backtesting, paper trading, and forward testing with less capital.

1. 1. Consider profits and losses in percentage, not in cash.

1. 1. Trade according to your plan and not according to guesswork and assumptions.

Do you think – “The market will come back and will let me take profits so I can ignore stop loss”?

It shows hope. With hope, you will have an unwanted emotional attachment to the trade and be reluctant to accept mistakes.

You can solve this issue by following a few mandatory steps:

1. 1. Place a stop loss in the system and not mentally.

1. 1. Consider it as a business cost.

1. 1. Trail your stop loss closer, but do not move it farther.

1. 1. If one trade fails, let it go; look for another setup that may bring you more fortune than your previous one.

Do you think – “I will cover the loss anyway”?

It shows revenge trading. Due to frustration, you will search for another opportunity and not accept losses or the mistakes you made, which may end in revenge trading.

You can solve this issue by following a few mandatory steps:

1. 1. After a loss, stop trading that day or week.

1. 1. Fix the maximum daily or weekly loss limit.

1. 1. Congratulate yourself for following the trade rules and plans, and ignore what happened to a single trade.

1. 1. Beware!!! The market will open tomorrow, and you can find another potential trade setup that might bring you a good reward. 

As students, we say that “one test paper result will not affect our future or life”

There is a one-way solution for this problem – Create a Trading Plan (refer to our previous post) and a Trading System, and follow it strictly. Before finding a strategy or creating a trading system, it is a must to acquire an understanding of the challenges a trader needs to face and decide to take necessary precautionary steps.