Management of Fear & Greed in Trading: Words like risks, fear, and greed in trading have no relevance. The supporting argument is that risk involves a lack of precision in the trading activity at stock markets.
Fear is the outcome of impending losses or losing money over a period. Moreover, greed is a human phenomenon that rises and hits the ceiling whenever you begin to make more money than anticipated.
Stock markets are highly volatile and to sail along, it will need great skills combined with strategies and tactics put into action carefully. However, it is essential, to say, that in a trading session, you must incorporate predefined calculations to avoid risks and overcome fear.
How to Manage Fear & Greed in Trading
A well-known fact is, Intraday markets involve great risks, and fear of losing money is inevitable. Although fear lies within, greed is a strong compelling force that makes you challenge risks and go ahead for quick multiplication of money.
When you begin to follow the predefined checks and counter checks in trading you tend to benefit more than a loss.
The practice of break-even win rate, and risk-reward ratio helps to navigate the trade-operational cycles comfortingly for a trader. Risk is the level of stop loss you set for, in intraday trading, and reward is the profit booking on a stock-trade.
You can be an investor or trader and manage your capital and risks carefully by following the steps meticulously. Say the risk-to-reward ratio is 1: 5 which means you are eager to take a risk of INR 1 to earn INR 5.
Experts do suggest a certain degree of calculated risks that can be taken to make sufficient profits. Instead, moving out of the way to make huge money can make you pepper which means greed has dominated your consciousness.
Market Risks: A vital component of Fear Syndrome
You will have to act briskly to avoid losses in your trading when you encounter various kinds of market risk. To make a mention of it, they are interest rate risk, equity risk, commodity risk, and currency risk.
Improper Decision Making: Not a Sign of Greed
To make this paragraph heading better understandable let us seek an example. You buy a share when it is on the rise, or at a reasonably low price then wait for the share to gear up in the trading.
Say, you have selected a share @ INR 500 and bought it, after some time its performance may show a positive trend. It may increase up to INR 600 and begin to decline and at INR 525 you intend to sell out and make a profit of INR 25.
Here, if properly analyzed, you failed to understand the market fluctuations and the share trending that led you to wait further when it reached INR 600, the top-notch at that moment. Therefore, you are not greedy but less informed about the chosen share progression and thus results in improper decision-making.
Tips to Safeguard Your Risk and Control Your Greed Element:
To protect your capital investment, you must set a stop loss of about a percent of the entire capital. If you have invested $100000 in trading, then you must bear in mind that the maximum loss you can hold is only $1000, which will safeguard your capital investment.
You may make a profit of about 10 percent but its continuance is difficult sometime later the chances of losing 10 percent are also there.
You must remember that your investment in options or futures needs to be hedged as it protects your money from heavy losses.
You can prosper well only when you diversify your funds in different portfolios and should be done throughout your trading career.