An old Wall Street saying:
“financial markets are driven by two powerful emotions –
greed and fear.”
Greed and Fear are the two most powerful emotions in the market which impacts the traders’ psychology to a huge extent. Greed is a human emotion which is due to selfish and excessive desire for more of something than is needed. Having excessive greed can lead to disastrous consequences whereas, the same can happen with fear. Fear is an unpleasant, often strong emotion, of anticipation or awareness of danger in most of the situations.
As per Trader’s understanding,
“Having Excessive GREED simply means to make lot of money
and at the same time,
too much FEAR to lose it all.”
Aspects of these two powerful emotions of a trader can be explained in detail as follows:
Excessive Greed: As a trader, we are never satisfied with the profits we make. Most of the people, who get into trading, have this mindset that they can double up their investment in just a month which itself is nothing but Greed and in order to fulfil that greed, they start gambling in these markets. So overall this mentality of getting rich quick (Greed) eventually leads to Gamble and as discussed in earlier blogs, Gambling can never provide consistent returns over the long run.
Excessive Fear: Like Excessive Greed, too much fear is also not good for trading. If you have fear to enter the markets thinking that whatif you lose your hard earned money, then this is not the right place for you. Trading is all about taking calculative risk and making returns from that. If there is fear to take some amount of risk, then one can never have high returns because as trading is probability based, there can never be 100% security.
Moderate Greed: Greed is always termed to be in a negative way which I don’t deny it personally. But as a trader, I have realised that having some greed always keeps you motivated to work towards improvising your strategy and achieving your profit targets. Such type of greed in a moderate form is what we call as Healthy Self Interest. Having said that, being emotional beings, we should always keep our motives under control.
Moderate Fear: Having too much fear of the market is definetly not good but having no fear will also lead you to distractions. Like we have always experienced that we generally have some fear from our elders but that’s just because of respect not because they will scold or something like that. Likewise, its good to have some fear from the markets, so that we always tend to stick to our discipline and our strategy and we always have the fear of the consequences of not following what we are supposed to.
To sum up, yes you can make big money from trading but it’s a marathon not a sprint. You’ll need to have realistic expectations and not get into too much greed as well as fear. Risk Averse people should control their fear and Risk Taker should control their greed.