Specialty Skills

Greed: The Unholy Spector in Your Trades

Dr. Woody Johnson

As I write this it’s the week of July 4th and in the U.S. it’s a time to celebrate our national birthday.  When you read this all the hoopla will be over but rest assured that people had a great time, what with a three day weekend that began with a literal “bang” with the 4th falling this year on a Friday leaving Saturday and Sunday to recuperate.  It’s a time for picnics, parties and parades while having an adult beverage … or two along with fireworks and lots of “excess.”  In fact, no doubt there will be contests to see who can eat the most hotdogs …actually; this has become a world-wide competition where one of the planetary leaders Takeru Kobayashi (a Japanese national) holds several records, including six Guinness Records, for eating hot dogs, meatballs, hamburgers, pizza and pasta.  Ah, excess, it can be fun, especially when everybody gets into it.  However, in your trading “excess” or “greed” is not a good thing.

Merriam-Webster’s Dictionary defines greed as simply, “… a selfish and excessive desire for more of something (as money) than is needed.”  Greed is often referenced as one of the main contributors to trading loss.  Greed mangles the mind by distracting the trader from what matters most in the trade, which is quite frankly to protect your capital by prudent planning and following rules.  It also distorts your judgment regarding high probability strategies and effective follow-through.  Additionally, it is the other side of the fear coin; that is, greed can arguably be thought of as a fear of not having “enough.”  Of course, having enough is a purely subjective notion, but for the reasonable person, someone who wants more, more, more as in getting every cent in a move, or wanting more than one’s share, is considered “greedy.”  Whether we’re talking about the fear of loss or the fear of not having enough, either way it is a very difficult emotional challenge to getting the trading results that you want.  Now, the question is what do you do about those bouts with fear/greed that takes your trading effectiveness south?  The important thing of course, is to manage your fear/greed one trade and one incident at a time.

Managing errant emotions is one of the most important trading skills that you can develop.  Emotions are an inextricable part of being human and cannot be totally taken out of the trading equation.   However, you wouldn’t “want” to take emotions out of your trading even if you could.  Yes, negative emotions throw a monkey wrench into your process; for instance, anxiety, fear, greed, guilt, self-doubt, impatience, apathy, to name a few are what mangle your thinking.  But what is also true is that positive emotions support effective decision making and follow-through.  Emotions like inspiration, determination, patience, confidence, curiosity, and the satisfaction of viewing your trade run its course successfully are highly supportive to effective follow-through.  So, if you became actually emotionless, you would be divesting yourself of the power of positive emotions.  This, of course, begs another question and that is, “how can I maintain more of my positive emotions?  Well, the first thing that you want to do is to monitor your thinking.  What and how you think is where emotions begin.  Look at it this way.  If during a trade, you tell yourself things like “I don’t trade very well” or “This type of trade really turns against me” or “I’ll probably make a mistake on this trade.”  Then, emotions of anxiety, trepidation, fear, and self-doubt, among others, are what follow.  Emotions are connected to thoughts.  If you think positive thoughts, then you will respond with an increase in positive emotions.  On the other hand, if you think negative, power sucking thoughts, you will begin to feel in ways that are consistent with those negative thoughts.  So, you must not only monitor your thoughts, you must change them when you become aware that they are negative.  Changing negative thoughts can be challenging and difficult when you first begin the process; but if you remain diligent, you will begin to consistently reverse negative thinking.

Another thing that helps you to manage your emotions is to visualize or imagine an experience from your past where you felt uplifted, confident and inspired.  These types of memories bring on positive emotional states.  An emotional state is broader than a single emotion.  For example, if you feel the emotion of anxiety, it involves just that feeling; however, if you are entangled in the “state” of anxiety, you will activate images that are anxiety producing, memories of times when you were anxious and various experiences involving anxiety.  So, when you want to change your emotional states from negative to positive you’ll want to not only track what you are thinking; you’ll want to change the pictures in your mind.  Now, you might be saying to yourself that this is difficult.  One thing you want to remember is that you are already doing this kind of thinking and visualizing.  Humans think in words “and” pictures most of the time, they just aren’t aware of it.  In fact, when you get consistent negative results one of the things at play is “doom and gloom” visualizing, which is picturing all the ways that the trade will not work.

So, the next time that you are feeling “greedy” or fearful it is very important to take an active role in finding out what you are thinking in order to change negative, unsupportive thoughts to positive powerful thoughts.  Then access and activate vivid memories of events in your life where you felt determined, inspired, confident, happy and uplifted.  These are just a couple of ways to help yourself plan your trade, trade your plan and follow your rules so that you create consistent results in your trading process.  Remember, the definition of effective trading is not solely connected to profit and loss, but to consistent execution.  Profit that is not associated with a plan and follow-through of all of your rules is profit that is not helping you become a better trader.  These and many other tools, techniques and concepts are what we teach in “Mastering the Mental Game” Online and On-location courses at Online Trading Academy.  Ask your Online Trading Academy representative for more information.  Also, get my book, “From Pain to Profit: Secrets of the Peak Performance Trader.”

Happy Trading,

Dr. Woody Johnson

This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.