Fear, Greed, Patience and Discipline
A lot of people that get into trading think that all you have to do is develop some awesome trading method and the millions will come rolling in – but there is so much more to it. Soon enough you will come to realise that your emotions play a huge role in opening, holding and closing positions.
Will you ever be able to train yourself to completely overcome silly trading mistakes? Probably not – but even just slightly modifying your behaviour can help improve your trading.
Remember that no one is perfect and developing good trading habits takes time and practise. Stop coming up with excuses and come up with answers that are going to help put you in the right direction and improve your trading.
If you are getting frustrated and stressed out over every single little error, then you are going to get burnt out and may end up hating trading. If you get frustrated at yourself for stuffing up – take a time out and calm down. Go for a walk, do some yoga, have a bath, scream swear words into a pillow, play some World of Warcraft – whatever floats your boat.
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So what are some of the emotions we as traders have to deal with?
Fear.
Fear of losing money.
Too afraid to enter positions.
Too afraid to give back some profits in order for a position to fully run.
Scared you are going to lose your entire account balance.
Scared you are going to have to close at a loss, so widen or eliminate stop just in case the price might turn around.
Greed.
Risking too much of your account each trade.
Placing trades just to be in the market.
Unrealistic profit expectations (which leads to overleveraging).
Making a decent amount of money in a short time frame and then wanting to repeat that straightaway even if you don’t have clear setups.
Patience and Discipline.
Not waiting for clear and proper setups before entering.
Not letting a position play out.
Taking profits too soon.
Can’t stop spending money that should be going towards building up your trading account.
Having trouble following your method.
Can’t stop risking a stupid amount each trade.
Ignoring stops.
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What can you do to change?
Step one: Be honest with yourself and identify what you need to change.
“I couldn’t enter this trade because I was too scared to take a position out of fear of losing money”.
“I couldn’t let my position run because I was scared of losing my $100 profit and couldn’t stand to see the profit section display a lower amount”.
“I lost $500 of my $1000 account due to overleveraging, because I couldn’t stand to “only” make $50”.
“I’m placing stupid trades based on no analysis because I can’t be bothered waiting 5 hours for another setup”.
Step two: Be willing to change.
There’s no point saying, “Ohhh yeah my patience sucks. I really should do something to improve…” and then not do anything about it. If you really want to be a better trader, then you must take action.
Step three: Make a plan and take action dammit.
It takes time and effort to change, but in order to become a better trader you really just have to do it. Remember that learning to trade successfully is not a race, can cost money and take years.
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A few ways to help deal with fear, greed, patience and discipline.
Fear.
Fear constricts our chances of becoming better traders/living the FOREX dream.
I am so sorry, but I really need to put this bluntly: If you can’t handle losing money or getting a trade wrong, then you really shouldn’t be trading. Positions that don’t work and bad calls are a normal part of trading.
So many people give up trading or disregard potentially profitable methods because they aren’t getting trades correct 100% of the time.
If you can’t pull the trigger when you see a good setup, then your positions are probably too large. Reduce your lots or even start from scratch and work your way up to bigger lots (say 1 mini lot this month, then try 2 mini lots next month and 3 mini lots the month after). This will help slowly build confidence so you can eventually pull the trigger with larger lots when you see the appropriate setup.
When you lose a trade it shouldn’t be the end of the world, potentially break up your relationship or put you in hospital from a heart attack. You should know how much you are risking each time you enter a trade and risk an amount you are completely okay with losing that won’t majorly damage your account. It is okay to have losing trades.
Greed.
We can read “Don’t be greedy!” a million times in trading books/blogs and even hear horror stories from other traders about being burnt from being greedy – but we still place risky and overleveraged trades anyway. It usually takes a big percentage hit to our account or a complete account wipe out to make us reassess and hopefully learn from our mistakes.
Sometimes all we have to do is exercise simple common sense. Taking 1 year to build up a $10,000 account and then risking so much you could blow your account in 4 losing trades over 1 week is not exercising common sense.
I have never been completely wiped out, but I have had one pretty decent loss due to risking too much and it scared the hell out of me. I traded a certain stock a bunch of times successfully and thought the success would continue, so I risked 15% of my entire account balance (when I usually risk 5%). Yep the world has a funny way of knowing when you are being greedy and puts you in your place. I initially thought I had lost it all, but was lucky to close out at a 7% loss – I definitely learnt my lesson from that one.
I also found that once I started trading, it completely messed up my perception of money. You are risking, making and losing money that would probably make the average person cringe. One little trick I do, is quickly calculate how much time and effort that money would take to make away from the trading world and it’s enough to prevent me from doing anything too risky and learn to be somewhat content with profits.
Patience and Discipline.
You must realise it takes time to alter your behaviour, so start small and keep practising. No one is perfect and we don’t all pick up things first go.
Having confidence in yourself and your method is very important. If you don’t trust your method, you probably haven’t done enough testing. You can always use small live lots and work your way up to help build confidence.
I’m not sure what your trading method is and how long you intend to hold trades for, but I find the best way to let trades run is to put a stop in, trust your stop level and just do something else to distract yourself for a couple of hours – go for a walk, read a book, start a blog or watch a movie. Sitting there with your eyes glued to your chart and your profit/loss section is not going to make it move any quicker. The more you watch it, the more your brain is going to do too much unnecessary thinking about your position and you will end up making emotional trading errors like exiting too soon or altering your stop much wider than you should.
If you intend to hold your position for days or weeks, seeing profit bounce around is completely normal. A chart doesn’t go straight up and down – so don’t freak out every time it goes 5 or 10 pips against you. Let the market do its thing!
Some people can enter with a set amount of lots and exit at their target with the exact same lots they entered with – but if your mind can’t handle that, you can always try scaling out of positions.
