Influence of fear-greed and intellect on our trading
Question:
How to beat emotions while trading?
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When do we have appearance of fear?
-On position opening
-If we have loosing position
(we automatically become optimist-body is protecting itself from fear)
-If we have wining position
(we are afraid for profit-closing the position to early)
When do we have appearance of greed?
-On position opening (how much we will EARN-take risk)
-If price goes against us
(we think optimistically and move our stop loss until it's to late)
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Trading is a GAME not a job!
Psychology approach to the game isn't the same as in the work.
Psychology approach:"I will open 1 to 5 positions today" is not GOOD!
Because it's the same as:"To earn some money, I will do this and that".
To win the game you must know yourself and have skills!
Probably you have heard the phrase "Your worst enemy is yourself".
At the beginning we must know the fact : While emotions rule, intellect is shut
off and the other way round.
We have two emotions that control you while you are trading the market: FEAR and
GREED.
Did you know that our entire life is controlled exactly with those two emotions.
Fact: In the moment when one of these two emotions show, human changes his decision in split of a second.
They say: There is a set of rules you must follow to overcome the emotions.
Easier said than done!!!
You need to practice knowing yourself!
I think that an example would be the best way of explaining:
Example 1:
A new day has started and I had my breakfast. On the way to my computer I make a
decision:"I will find an opportunity to set up a position"!
I am watching the screen, searching for the opportunity, analyzing, waiting
patiently and in the end I enter into the position.
I understand that I have made a mistake, but I am an optimist. I continue to wait
for positive results.
I stick to the rules strictly, Stop loss is fixed. Time is passing. In the end,
price hits stop loss.
Beside having a loss, I recognize that I had made totally wrong interpretation
of the graph at the start. Everything has been showing the other direction of
price movement.
Example 2:
A new day has started and I had my breakfast. On the way to my computer I made a
decision:"I will watch price movement for a while, I don't have any intention to
open a position today at all"!
I am feeling comfortable. I am watching the price movement, analyzing, waiting,
but there is nothing. I take a break and watch TV.
After some time I come back to the market and watch for a while. In a moment I
notice the algorithm (regularity that is repeating).
I define a certain spot of entrance, stop loss and take profit.
I say to myself:" Let me see if I am right, would price come to the spot of
entering into the position?" After some time price is exactly at the spot of
entry.
I am getting into the position.
(if price doesn't come to the spot of entry, I pass that opportunity).
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What do you think, which of those two examples is correct?
Let's analyze example 1 regarding example 2.
Example 1
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"I will find an opportunity to set up a position"!
Decision like this automatically activates emotions of fear and greed even if you
didn't approach the market.
When you look at the market, you will watch the market through the filter of
emotions(fear-greed but intellect disclosed)
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I am watching the screen, searching for opportunity, analyzing, waiting patiently
and in the end I enter into the position.
Decision is based on emotions!
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I understand that I have made a mistake, but I am an optimist. I continue to wait
for positive result.
You understand that you had a mistake but you don't know why. If you don't know
why, the best thing is to stick to the rules strictly (stop loss and take
profit). In case you know why you made a mistake, you would flat the position
right away.
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Beside having a loss, I recognize that I had made totally wrong interpretation
of the graph at the start. Everything has been showing the other direction of
price movement.
Now when everything is over and emotions are gone, intellect is active again, you
see the picture logically as it was on the beginning.
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Example 2
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"I will watch price movement for a while, I don't have any intention to open a
position today at all"!
This kind of decision makes you absolutely comfortable - today you will just
watch the graph without any obligations.
There are no emotions and your intellect is active.
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I am feeling comfortable. I am watching the price movement, analyzing, waiting,
but there is nothing. I take a break and watch TV.
After some time I come back to the market and watch for a while.
Still there is comfortable feeling which proves that there are no emotions and
our intellect awareness is active.
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In a moment I notice the algorithm (regularity that is repeating).
I define a certain spot of entrance, stop loss and take profit.
I say to myself:" Let me see if I am right, would price come to spot of entering
into the position?" After some time price is exactly at the spot of entry.
Knowledge based on intellect.
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I am getting into the position.(if price doesn't come to the spot of entry I pass
that opportunity).
Decision made on intellect basis. After entering into the position there is a
good feeling!
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Who would say that the enemy is hiding at the beginning, right between breakfast
and my way to the computer!!!
( Text is taken from here:
http://trade-forex-questions-answers.blogspot.com/2010/05/influence-of-fear-greed-and-intellect.html )
