How To Stop Greed When Trading?
If you want to become a consistently profitable Forex trader, one of the significant psychological obstacles you will have to overcome is greed.
When a trade is going your way, or you are on a winning streak, the brain will automatically go into “more, more, and more” mode.
You must be able to “mute” these thoughts and focus on what the market is telling you. Here are some mechanisms that will make this process straightforward.
1. Have a trading strategy and follow it religiously
When you feel greed creeping into your body, look towards your methodology to TELL you what to do. If a certain opportunity does not meet your entry criteria, then do not enter. If your system provides an exit signal, then exit the trade.
Your rules should govern all the decisions you make as a trader!
2. Stay within your risk parameters
Risk parameters such as risk per trade, max loss, and max drawdown are there for a reason. As soon as you stray away from them, you remove the leash from your emotions and let them run wild. TRUST ME, your bottom line will not look pretty if you allow that to happen.
But as long as you remain at a risk level where you are comfortable but still making good gains, there is little chance that feelings such as greed will dominate your decision-making process.
If you are currently in a vicious cycle of greed and poor trading results, or if it happens in the future, decrease your position size until you shake the feeling off.
3. Use stop losses and/ or take profits
Stop losses and take profits are orders designed to close your positions automatically. If you put these in place before entering a trade and keep them where they are supposed to be, these orders will make the decisions for you, and greed won’t have the opportunity to affect your results negatively.
Are you against limiting upside potential? Then implement trailing stops instead of using take profits.
4. Keep a trading journal
Journaling allows you to analyze yourself as well as your trading flaws. When looking back at your journal, you will find the root causes that make you greedy in the market.
It could be a big winning trade, a long winning streak, or something in your personal life. Whatever it may be, you can find what triggers the feeling and develop ways to fix it going forward.
5. Improve your discipline
You may have noticed a common theme during this article. Like most aspects of trading psychology, the best way to fix greed is to follow your predetermined rules for entry, management, and exit.
So if it comes down to discipline, then look at ways you can practice this trait in trading specific scenarios (e.g. backtesting and demo trading) as well as in your personal life (exercising and developing positive habits).
Conclusion – Why should you stop being a greedy trader?
Greed leads to a long list of errors, to name a few:
- Leaving a position open when your system tells you to exit.
- Taking every opportunity that you see.
- Risking too much on your positions.
All of these equal less profit in the long run. To keep it simple, if you want to make as much money as possible…
Stop being greedy!