c18 JWBT016-Busby September 30, 2008 15:3 Printer: TBD
Psychology and Discipline: The Winner’s Edge 173greed, arrogance, shame, glee, and panic. These emotions may be so pow-
erful that we act in ways we did not anticipate and our behavior becomes
self-destructive and financially harmful.Greed Is Deadly
We are traders because we enjoy making money. The more money we
make, the more satisfaction we obtain from the pursuit. Translation: we
are all greedy. We want to make the most money we can on every trade.
We hate leaving money on the table, and we do not want to lose a dime.
Greed, when it is uncontrolled, will lead us to take risky trades and to stay
with losing trades too long. Once greed gains the upper hand, we begin
looking for more and more chances to make money. The result is that our
analysis becomes faulty and we dismiss warning signals. A trader who is
searching for a trade might say to himself, “The NYSE issues are still weak,
but the futures indexes are moving up. If I buy now, I can get a jump on
the market and make more money.” Or “I need to short something and I
need to do it NOW. The S&P 500 is heading down.” In your haste to get the
green, you may forget to note that the S&P is trading at a strong support
level and the Nasdaq and Dow futures are not looking nearly as bleak as
the S&P that you just shorted. The result of such hasty actions will be loss
and eventually the consequences may be your total destruction as a trader.
The only way to succeed in trading is to recognize and moderate greed so
that it does not sabotage your trading.
In addition to getting you into losing trades, greed will also be responsi-
ble for holding trades too long—both winners and loser. You will hold win-
ners because you do not want to leave a penny on the table. You are never
satisfied with the profits you have and want more. When holding winners
too long, they often turn to loser. Therefore, take reasonable profits and be
happy. You will not get rich on every trade. It is the process of consistently
making good trades and earning money that may get you riches. When you
enter a trade you should know where support and resistance are located. If
you are long and prices near a resistance point, take some profits on all or
a portion of your trades. Do not take an all-or-nothing approach. Put some
money in the bank. Far too often, those traders who want all or nothing get
nothing.
Greed can also add to losses. It is hard to admit a mistake. Years ago,
I liked to fool myself. I would tell myself that a loss was not a loss unless
and until I liquidated the position. As long as I was in the trade, there was
a chance that the market would go my way. I would hold on because I did
not think I could take the loss. I was just too greedy to accept it gracefully.
Hoping that the market will pay you is an ineffective trading strategy. Read