BACK TO BASICS: Dealing with Greed
Email This Article
Print This Article
Digg This
Delicious
SubscribeMOST POPULAR ARTICLES
- Foreign Exchange: To Parity and Beyond? Not Yet.
- Weekly Outlook, February 8, 2010
- Technical Analysis: Commodity Play
- Closing Wrap-Up, Feb. 8
- Kaeppel's Corner: Don't Give Up On Gold Stocks Just Yet
- Market Trends: Intermarket Analysis, Part I
- AU Editorial: A Likely Scenario?
- Closing Wrap-Up, Feb. 5
- Fundamental Focus: The Habits of Wealthy People
- Morning Watch, Feb. 8
- Fundamental Focus: The Habits of Wealthy People
- Kaeppel's Corner: Don't Give Up On Gold Stocks Just Yet
- Market Trends: Intermarket Analysis, Part I
- BACK TO BASICS: Choosing Between Bull Call and Bull Put Spreads
- TRADING FLOOR SECRETS: When to Avoid Buying Calls
- Analytical Toolbox: Market Timing and Portfolio Hedging
- Midday Action: February 9
- Growth Stock Swing Option: February 9, 2010
- Technical Analysis: Commodity Play
- Midday Action: February 8
- Foreign Exchange: To Parity and Beyond? Not Yet.
- AU Editorial: A Likely Scenario?
- Economic Watchdog, Feb. 4
- Market Trends: Intermarket Analysis, Part I
- Hot Shots: Feb 3, "RAD" Action for Bears?
- Kaeppel's Corner: Don't Give Up On Gold Stocks Just Yet
SPONSORED LINKS
November 28, 2005
When it comes to the emotion greed in the trading business, it can certainly be considered very deadly territory and definitely can have a very adverse impact on the trader’s account over time. Greed has the potential of quickly taking away hard-earned profits because it makes traders do things they would normally never do, like jump into trading positions that they might not take if they were thinking coolly and with logic. The best and most successful traders keep greed firmly in check by preempting it before it trips them up and hurts their account.
One thing traders can do to help control and overcome greed is use target exit points. Essentially this translates into establishing specific, predetermined points at which traders decide to get in and out of a particular trade, even when greed is telling them to stay in or get out. Traders should never take profits in a haphazard way. When they do take profits by the seat of their pants they are violating Rule #1, which is to have a targeted exit point. Taking profits here and there simply means the trader has illogical exit points.
It is very important for traders to determine an exit point and closeout before they enter into the trade. The second very important rule to manage greed is never to deviate from the target exit point. The target exit point, when selected before the trade, is based on logic. The reason why traders can be logical when determining the targeted exit point is the fact that they are not in the midst of actively watching the market do its thing.
For instance, the second the market takes a sharp dive against the trader, it’s almost impossible for the trader not to have a strong, knee-jerk emotional reaction. In addition, when the market surges in the trader’s favor, the greed factor may kick in and the trader rushes in to take the profits, only to lose on even greater profit.
The bottom line is that when traders put themselves in a position where they are making decisions in the heat of battle, they will be making decisions based on emotion, not logic. They will also be extremely susceptible to greed. So make sure to select your exit points carefully before the trade, because doing so will help tremendously in managing the greed emotion in your trading.
Happy Trading.
Jeff Neal
Senior Writer, Options Strategist & Profit Strategies Radio Show Market Correspondent
Visit Jeff’s Forum
Listen to Jeff at www.ProfitStrategiesRadio.com
© Copyright 1995-2010 Optionetics. All rights reserved. This material is for personal use only. Republication and re-dissemination, including posting to newsgroups, is expressly prohibited without the prior written consent of Optionetics. Optionetics is a registered trademark of Optionetics, Inc.