The statement can be made that these two emotions will denominate many of the decisions that you will face you in your life…. However, for our purposes as a speculator it can help to at the very least know how these two drives might impact your decision-making processes. We taught you How to Lose Properly two articles ago; and in our last article, we showed you how to approach markets with a positive attitude, and the value that could come from it.
There are numerous traces of the origins of these two drives, but if analyzed logically they derive to the innate human ability to survive.
This is somewhat related to the fight-or-flight instinct that exists in each and every one of us. Fear is what we feel when we recognize a threat, like if we were foraging for berries in the forest and we happened across a black bear.
In this situation, you should be scared; fear is a natural instinct that could help keep you alive. Greed could get you killed. Threats like losing trades should invoke fear, fear keeps you alive. Greed, on the other hand, also helps you survive. Greed and fear are really just survival instincts. Fear and greed impact many of the decisions you make on a chart, but the big question is as to whether or not they actually help you.
Imagine that you wake up in the morning; you saunter over to your computer with a fresh shot of espresso in hand, and you look at your trades from the day before. What do you do? Most people will begin rationalizing: Others will just get greedy: And yet others will begin the bargaining process: Each of these responses are greed speaking. This is when you want to be scared… the position has already shown you a pip loss; the black bear is standing just around the corner ready to eat you!
The greedier you get, the nastier it will be. You wake up; you stroll to your computer with a macchiato ready for consumption and you see that the Euro trade you placed last night is up 50 pips. Remember that trade from x days ago, when I had pips up and it all came right back?
What if that happens here? Most human beings begin ascribing all kinds of emotional conflict to this situation; and a lot of it is surely baggage from other areas of life that we all go through.
Most human beings in this situation will be scared. Scared that the Euro will come right back against them, and take out their stop. It simply means that you have a position in which your analysis has proven correct. This is prime time to err on the greedy side, ladies and gentlemen. The position has shown you a profit; and this confirms that your initial analysis was correct.
Most people get scared here, but this is where you want to be greedy. My advice to them: Plan your trades ahead of time. You can try to get the probabilities on your side as much as possible such as the way we outlined in The Potent Combination of Fundamentals and Price Action.
Set your stop, and only risk an amount that you can afford to lose. If the trade moves against you, take the stop and look for greener pastures elsewhere. Would you like to get better with Price Action?
Please feel free to take our 15 minute course on the topic. Price Action Presentation via Brainshark. Forex — Secrets of Profitable Forex Traders. DailyFX provides forex news and technical analysis on the trends that influence the global currency markets. Click here to dismiss. Price action and Macro. Foundations of Technical Analysis: Classic Chart Patterns, Part I. Upcoming Events Economic Event. Forex Economic Calendar A:More...