People are emotional beings, usually overwhelmed by emotions in the most unpleasant situations. The following emotions not only push the trader to acquire more risks; they also make him do illogical and often disastrous decisions. Here are 5 most disastrous trading emotions that you should try to avoid at all times.
Greed
In the world of trading, a common saying goes “pigs get slaughtered” while bulls and bears make money.
Greed is a typical human trait that almost always leads to losses and disaster. And even if a healthy amount of greed can usually result to some lucky wins, the risks far outweigh the benefits it can give. That urge to squeeze in extra 10 pips can actually lead to you losing more than what you ever had.
Greedy traders tend to hold on to winning positions in hopes of getting the most out of a position. Another form of greed is when a trader adds to a winning position simply and solely because the market has moved to their desired direction, without any analytical or fundamental backing.
Euphoria
After a winning streak, many traders usually fall for another form of greed. Basically, a euphoric trader gains too much confidence that he enters and holds many new positions in the same direction as the previous wins. This also adds to the risks he is facing.
This is the reason why many new traders experience a hard fall right after they experienced a winning streak. It is quite tempting to pursue a winner right after a good profit. However, you must remind yourself that previous performance alone doesn’t guarantee continuous gains.
Fear
Fear, as we all know, is an overwhelming feeling that’s difficult to overcome. No matter how natural this is for humans, it’s really not needed in trading.
Fear can force you to exit a winning position too early or miss opportunities by not entering a position at all, thus making you lose.
Allowing fear to get the better of you can be disastrous for your trading career. It may even pave the way for other destructive emotions like anger and revenge. Fear usually comes after a streak of losses.
Overcoming fear is no easy task. You must have discipline, patience, and a generous amount of practice. Before you enter a trade, you must be clear about how much you want to lose. Better, you have to set up parameters and insurances that will protect you from losses, minimizing the chances of having to deal with fear and losses.
Vengeance
Revenge trading usually happens after a trader experiences a loss, particularly if it’s higher than what he could accept. Market traders usually feel the need for vengeance when a trade that they thought would be successful goes south.
In order to beat or avoid this emotion, proper money and risk management should be done. The trader needs to consider that there is nothing guaranteed in the market and he or she should always use protective stop orders.
Pride
Pride manifests itself when the trader refuses to admit and recognize mistakes. When this happens, they become unable to learn and improve. In other words, their thick skulls pull weigh them down, and stops them from getting better.
When this happens, the trader commits poor risk management, if at all. Of course, without an efficient risk management system, the trader is bound to lose his money.
