id 
ar 
ru 
vn 
es 
pt 
th 
kz 
ua 
tj 
uz 
az 
ms 
Psychology of greed
We would like to start this article about greed from the statement: the main enemies for would-be traders are fear and greed. Fear is easy to recognize, when a trader is stopped from doing what he/she is supposed to do in order to avoid the consequences. But psychology of greed, on the other hand, is another story.
The desire to gain more is the most usual form of greed, which is also the easiest to recognize. For example, if for a certain strategy, 60% of winning trades are at 30.0 pips, while 30% are at 20.0 pips and only 10% are at 50.0 pips. If using this strategy a trader aims for 50.0 pips profit for every trade he/she places, then his/her decision is based or driven by psychology of greed.
But greed can also come by a different facade and it is proven in many articles about greed. Prior to placing any order, a trader watches his/her chart for a certain “sign” as an opportunity to trade. When the sign is formed, the trader then looks for a “trigger” - confirmation that the said setup is valid and the opportunity to trade is real. And the trade is done in profit. Then the trader looks for another setup, wait for another trigger, and trades to gain another victory.
When a trader makes one winning trade after another, his/her equity is not the only thing which is growing. His/her self-confidence grows as well. And as his/her self-confidence grows, the fine line between self-confidence and over-confidence becomes even finer. When the trader crosses the line, instead of waiting for a trigger or confirmation signal, he/she treats a setup as the trigger, and places trades ahead of his/her trigger.
On the face of it, this is over-confidence in action. But, on a deeper level, it is another face of greed. The decision to turn a setup signal into a trigger signal is not made because of the trader's confidence about it certainty. On a deeper level, the decision is made in order to gain more profit, to make more money. And, to gain more, is greed.
Another situation is when a trader has an open position, and it shows a floating profit. Then the trader sees that he/she has free margin way over his/her margin requirement. What a waste of free margin, it seems. After all, the current trade is already in profit, albeit floating one. Based on past performance, such situation usually leads to a winning trade most of the times. But if the trader places another trade, he/she is making an error.
The decision to open another position in this situation seems like a sound one, supported by statistically proven past performance. And, sometimes, the first time a trader takes this action, he/she makes an additional profit. And that's the tell-tale, “makes an additional profit”. In other words: to gain more. Therefore, such a decision is actually a greed-based one. Like any other greed-based actions, it might gain a positive result at first. But, in the end, it will drain the trader's equity in a much shorter time.
Thus, a trader must always review his/her decision carefully. If it is outside of the strategy rules, whatever reason underlies, most usually they hide a camouflaged greed.
You might be also interested in:
