Emotion States Of The Average Trader – Greed, Fear, Hope, and Regret
Trading is not an easy game. You have to take the wins with the losses and learn to be one of the most patient persons in the world. But there is a deeper hidden side of trading that no one really talks about these days. That is the Psychology behind trading or traders psychology.
There are many psychological states for us as human beings, but as traders there are even more heightened states of emotions that drive our most individual decision making process. These highly emotive states are GREED, FEAR, HOPE and REGRET.
What is Greed?
We can define greed as a desire for 3 things:-
1) Personal satisfaction
2) More money
Greed here is when all a trader can see is how much money they have made, not how much money they could lose if things go against them.
The thing to remember here is that profit is not actual realized profit until a position is closed. Until then, all profit is just PAPER PROFIT. Greed can then cause a trader to ignore proper risk management procedures and increase their risk of heavy losses.
What is Fear?
This is one of the most talked about emotion in trading. It is also one of the emotions that all traders struggle with time to time. FEAR!
Of all the human emotions, FEAR is the most powerful. When you are trading, fear can take over and cause you to sell a position, or even buy fearing you are about to miss a rally. Fear can cause us to panic and make silly mistakes.
Fear can get you out of a bad trade, but it can also make you take profits from positions too early. You can panic, jump the gun only to see the prices take off again.
What is Hope?
Next we have HOPE!
This is a raw emotions and expectation that something will happen. Its a want or need, and expect results.
Hope can prevent a trader from taking profits when his position is in a winning or profitable position. Traders have a habit of thinking they CAN BEAT THE MARKET, when this is impossible. Normally a trader is in hope when he position goes against him and he refuses to let it hit a certain stop loss level. He will believe and tell himself that the position will come back to his entry level and then be in profit, right at the time when the position is going so far past him, and the damage is so great, HOPE becomes a sense of denial in some regards.
Normally when HOPE takes over your thinking the market will punish you beyond your worst nightmares. Traders who live in hope face huge risks and maximum damage in the markets. It might not happen today, but when they least expect it.
What is regret?
Lastly we have REGRET.
Many traders can relate to this powerful emotion when it comes to trading. The reason is because it goes hand in hand with the other three raw powerful emotions above.
Regret is a kind of toned down depression or sadness over something that has happend as a trader. Especially when it involves a loss or missed opportunity.
This can be also the feelings of WHY and HOW did things turn out in a negative situation. Normally the trader will ask questions why, but soon realize that damage is done and asking oneself questions can not undo the damage. Then the trader will go in a further second degree of guilt and further regret.
The positive thing about the REGRET emotions is that positives can come from this. Lessons will be learnt and a trader who can go on, will usually use the mistakes and lessons learnt to make better trades next time. A good trader will have some regret but be able to move on and use his past mistakes in a good way.
We all grow older and make mistakes. Life would be pretty boring if we went about our day doing the right thing. So as a trader you have to realize that you will make many mistakes along the way, however the second part to this realization, is that they can help in future times. Mistakes should only happen once. Learn from your mistakes, and do not dwell on them. This is the best way to become a self educated trader who can maximize his profits and minimize his risks.
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