Greed
“Lesson number one: Don’t underestimate the other guy’s greed.”
Greed: intense and selfish desire for something, especially wealth or power. Greed causes traders to trade too big and risk too much. Greed is the best get-broke-quick scheme available to traders. There are no shortcuts or secret strategies that will replace homework and the school of hard knocks. If you want to be successful, you need to focus on overcoming greed and the urge for easy money.
Greedy trading can result in blindness to danger, a desire for quick profits, and a loss of trading capital. Follow the following steps to overcome greed in trading
Don’t ignore the risks: Greed causes a trader to only look at things in reverse, by focusing on the best-case scenario and ignoring the worst-case scenario. Traders must determine how much they can lose if the trade goes against them, and then be able to see the potential of subsequent trades.
Watch your position size: Greed causes traders to take too large a position size in hopes of scoring a big win. Profitability comes from consistently trading with an edge over time, not big trades that can just as easily turn into big losses.
Have realistic goals: A key to profitable trading is exiting a winning trade at a profit while the money is still there. Greed can cause a trader to stay in a trade too long with unrealistic expectations.
Trade with a plan: Greedy traders tend to enter positions on faith rather than quantified analysis, take trades where the odds are against them, and chase overextended trends in the markets. Greed for gain is a terrible entry method. Instead, develop and follow a robust trading plan.
Don’t be tempted. Greed tempts a trader to enter the markets without doing the necessary homework. Traders entering the markets without doing the necessary research and developing a tested trading plan will quickly discover their mistakes.
Watch your odds. Successful traders act when the odds are in their favor, and not because they dream of enormous returns on any one trade. Buying far-out-of-the-money options, buying into a down-trend market before a reversal, and chasing an extended bull market, are all examples of entering due to greed.
Embrace experience. Greedy traders are looking for the easy path to money, and are not interested in hard work or gaining experience. Be prepared to put in long hours and treat trading just like any other business.
Don’t fall into the urge for easy money. Dedicate yourself to learning the market and developing a trading method that will return consistent long-term profits.
