In this section we'll talk about:
- The fear and greed monsters
- If you are - or aren't - well suited to futures trading
- Positive personal traits that can really hurt you in trading
- Tips/techniques for handling greed and fear, and
- Balancing winning vs. losing trades.
Greed and Fear are Brutal,
but Success often Kills
Strange headline, isn't it? But what does "success often kills" mean?It embodies a simple, but very powerful distinction...that you need to make
to potentially become a successful trader.
That distinction is this...the very characteristics that make people successful in life...can and do work against them in futures trading...
often with deadly results.
Hoping the price would turn around, your persistent side tells you to lower your stop loss to give the price more room to move lower before it heads back up again.
Unfortunately the price continues to drop, and you end up out of the trade with a much bigger loss than anticipated, due to lowering your stop loss, instead of leaving it set to capture initial profits or at worse,
breaking even.
That's how both greed (desire to profit) and fear(of getting stopped out and losing on the trade) work against your persistent nature. That 'fighting to stay with it' attitude...can cost you in futures trading
How about "hope" and a "positive mental attitude"?
They'll kill you as well if not managed properly.
"Oh, the drop is just temporary, I KNOW the price will rebound and we'll make a profit", you tell yourself.
Yea, right. The markets and commodities don't care about you.
And hope...counter to what you might like... is NOT a trading strategy.
That's another quick example of greed and fear undermining 'hope' and a 'positive attitude'. 'Nuff said.
So, when it comes to futures trading and greed and fear, realize that you need to make a big mental shift from how normally encounter and handle challenges in the world.
Futures trading operates VERY differently than everything else, and you need to reign in your personal strengthswith a highly disciplined approach to your trading.
Should You Even Be Futures Trading?
If you're wondering if you'll ever get this commodity futures trading thing right and/or make any money at it, welcome to the club!
Or, if you're debating whether or not to get into the commodity trading game, you'll find out what we're talking about soon enough. At the very least, the questions below will help you figure out if you potentially 'have the right stuff' and/or should be trading futures.
The greed and fear gremlins get to everyone. These mental monsters
live for and love to create fear, uncertainty and doubt in traders' minds.
Greed and fear are two sides of the same trading coin, sharing a common thread - uncertainty - over when to enter and/or exit a trade, and how best to manage trades when your in them.
But first, let's take a short but related diversion to the question of...
...should you even be trading?
Another way to put it is, How well do you know yourself?
==> How do you handle volatile, emotional situations?
==> Do you prefer to deal in reality...or with denial?
==> When confronted with a stressful situation, do you lean towards a 'fight or flight response?
==> Do you meet difficult situations head on, and go through, around or over them?
==> Or do you think, analyze, replay and strategize multiple potential outcomes, or even become paralyzed, unable to move forward?
==> Do you fret setbacks or see them as part of the road to reaching your goals?
==> Are you prone to 'defensive' or 'offensive' situational approaches when faced with obstacles?
==> Do you share the Thomas Edison approach to life?
(- 'there is no such thing as failure, just another way to find out if something didn't work'). Or do you get caught up in failure?
Greed and Fear can and do come into play very easily and quickly in trading.
While these questions may not seem relevant to trading, the situations they mentally put you in, are.
The decision process is the same, regularly involving tough, hard choices with real money and loss potential on the line. It's not easy to remain unemotional in the stressful Futures trading arena.
If you find yourself more prone than not to "fear/defensive/afraid/flight" responses, perhaps trading is not for you. Hey, don't feel bad - it's not for many people!
If you have a tough time sustaining and recovering from emotional loss, and find it difficult to emotionally distance yourself from certain stressful situations....you may find it very hardto succeed in futures trading.
That's what greed and fear...in life...and particularly fear in futures trading can do...paralyze you.
Learning to be emotionally cold and dispassionate about your trades...and effectively managing greed and fear...are very important. Critically so.
Doing so allows you to cage the Greed and Fear Monster, become far more calculating and objective, and thus more consistent and potentially successful, when entering/exiting futures trading positions.
Techniques for Managing Fear and Greed
As commodity traders, what can we do to help ourselves learn to master and downplay our emotions when the greed and fear/fear and greed gremlin brothers raise their ugly heads and voices?
TIP #1. - Develop and stick to a trading plan
Shooting from the hip worked pretty well in the old Wild West...but doesn't work too well when trading futures.
One of the best ways to help manage fear and greed is to have a trading plan. Determine ahead of entering the trade - - - if the price moves in your favor - - - how much profit you'll be happy taking out of the trade, even if it's break even, in the event the market moves against you.
At the time of trade entry, place your exit stop loss order (above the entry price) and your long stop loss order (below the entry price).
Then stick to your plan.
If trading multiple (two for example) contracts, you can 'scale out.
Plan to liquidate one contract for a profit at your initial exit point,
and the second at a higher predetermined point.
Assuming you made a profit after commissions on the first contract,
you're now playing with the markets' money on the second contract.
By trusting your trade plan and sticking to it (only you can do this),
you can help keep the greed and fear/fear and greed brothers in check.
TIP #2. - Use Trailing Stop Losses
Trailing stops allow you to set your initial stop loss a fixed percentage or number of points above or below your entry point, based in part on your risk tolerance level.
Should the market move against your position immediately upon entry,
you minimize your potential loss.
If the market moves in your favor, your stop loss moves, trailing the price by your initially set amount. Trailing stop loss points never retreat if the price moves against your position...they only move with your position, locking in profits as they go.
In this way, your trailing stop loss locks in profits as the market moves in your favor, and when it hits your stop, automatically liquidates your position (exceptions may occur in rapidly moving markets like limit up/down moves or when the market gaps up or down past your stop loss. In these cases it may not be possible to exit the trade at your desired and specified stop loss point).
This is another way to minimize the effect of the fear and greed gremlins...as long as you leave your trailing stop alone when the market price starts retreating or moving against your position.
TIP #3. - Develop Trading Consistency with a "Mechanical" System/Signals Approach
Whatever your strategy is, learn to follow it consistently and religiously on each and every trade...
...(unless over a reasonable period of time and trades, you have valid results proving that you should not follow the strategy any longer).
A trading strategy is useless if you don't follow it. And if you start getting away from your plan, I guarantee you that greed and fear/fear and greed are creeping in. That should be your first clue to go back to your plan.
If for example, you are using your own or a 3rd parties' trading signals,
and you trust them, then when you get a valid and confirmed entry signal, enter the trade. ALL of them. Don't debate or try to out think the system or signals.
Conversely, when you get a valid and confirmed sell signal, exit the trade. ALL the time! Don't get greedy and pig-ish.Remember, bulls and bears make money, but pigs get slaughtered.
In a sense, once you have your system/trading approach in place and believe it in, put on the blinders and trust it to perform.
Sure, you'll have losers, but that's part of the game. If it's a good approach, the winning trades will put you into the black regardless of the losers.
TIP #4. - Learn Emotional Balance
The most difficult thing you will wrestle with is learning to trade unemotionally, or as unemotionally as possible.
Difficult as it is, make it your primary goal. You'll be far better off for it.
When you have a profitable trade win, be happy about it, of course.
But quickly file that emotion away. Evaluate what you did that went right, and what you could have done better. Then move onto the next trade.
Cultivate a business-like approach to your trading and you'll help chase Mssrs. greed and fear/fear and greed away.
If you have a loss or a couple of losses in a row, keep them in perspective. Shrug them off. Embrace them, as you are one step closer
to a winning trade.
Remember, you can't have winners withoutlosers...and many profitable systems and traders experience more losing trades than winners.
The key is that their winning trades were bigger more profitable moves overall, while they minimized their losses.
Net Result = they're in the black.
In other words, don't allow yourself to get super high off your wins, nor super low off the losses.
One of the best tips I'd come across from a successful trader was when the market does something you didn't think it would, simply say out loud to yourself "Hmmm, that's interesting".
No huffing and puffing or getting bent out of shape. Just cold, unemotional detachment. And then move on.
TIP #5 Keep a trading journal
The last technique that can help you wield mastery over the greed and fear gremlins is to keep a trading journal.
Record your feelings/thoughts as you approach, analyze, execute and liquidate each trade. Learn from it. Study it. Go back to it regularly.
Then approach the next trade better, more prepared in in control.
return to home page from Greed and Fear page
-------------------------------------------------------------------
FUTURES TRADING and FOREX TRADING DISCLAIMER:
Trading in Futures, Index Futures and Option of Futures involves substantial risk, may result in serious financial loss and is not suitable
for everyone.
As with Futures Trading, trading Foreign Exchange instruments carries
the same substantial risk of financial loss, and is not suitable for many members of the public.
The information on this website is provided purely for informational purposes only.
You should carefully consider whether trading is appropriate for you
in light of your experience, objectives, financial resources and other relevant circumstances.
Futures-Trading-Mentor.com expressly disclaims all liability for the use
or interpretation by others of information contained in this site.
Decisions based on the information contained in this site are the sole responsibility of the visitor, and in exchange for using this site, the visitor agrees to hold Futures-Trading-Mentor.com harmless against any claims for damages arising from any decisions that the visitor makes based on such information.
While the information on this website is believed to be accurate at the time it is posted, we cannot give any assurances that the information
is accurate, complete or current at all times.
-----------------------------------------------------------------
