Fear and Greed

[Ericthetrader 10]

With the tremendous leverage Forex trading offers, you are frequently exposed to the basic emotions of fear and greed. At certain times throughout your trading career these emotions can make you completely and absolutely irrational, oblivious to what is really happening. It can make you rely on hope; hope that the market will do what you want it to do because it "must"! Otherwise, you will lose all of your trading capital.

[Tradewinds 12]

The way I deal with this fear is accepting that losing money is part of the process..

http://www.traderslaboratory.com/forums/37/how-much-pain-before-change-9199-3.html

 

Reminds me sort of like The Serenity Prayer:

 

"God grant me the serenity

to accept the things I cannot change;

courage to change the things I can;

and wisdom to know the difference."

 

--Reinhold Niebuhr

 

The issue in trading is having the wisdom to know what you can change and what you can't change. And that is a very murky place for most of us. It's difficult to see through the fog.

 

It starts with defining what an acceptable loss is.

[TheNegotiator 13]

Wisdom comes with ability to learn, humble attitude and experience. To consistently trade well and make money over the long term, you must be wise.

[ahimsa 10]

Wisdom comes with ability to learn, humble attitude and experience. To consistently trade well and make money over the long term, you must be wise.[/quote

Edited April 3, 2011 by ahimsa

[johnw 10]

Fear and Greed.

 

Perhaps fear comes from the potential to lose or to be wrong.

 

And greed comes from the fear of never having enough... a repackaged name for fear.

 

Either way fear is just fear

[TheNegotiator 13]

I believe fear is a by-product of low confidence in your trading strategy and/or the trader's ability to execute it.

 

Greed is loss of objectivity and the human instinct of over provisioning for leaner times.

[MightyMouse 12]

Fear in trading is an illusion. It is your own personal manifestation of social, religious, personal beliefs that you have developed. None of which has anything to do with the market.

 

If you have learned to defeat fear in other parts of your life, then you can defeat it in trading.

 

If you are afraid to lose money, take a stack of cash and light it on fire. To do so is to show yourself that you do not give a shit if you lose money. Whatever it is, face it and it will soon vanish. If you protect it, it will stay or grow stronger.

[TheNegotiator 13]

Fear in trading is an illusion. It is your own personal manifestation of social, religious, personal beliefs that you have developed. None of which has anything to do with the market.

 

If you have learned to defeat fear in other parts of your life, then you can defeat it in trading.

 

If you are afraid to lose money, take a stack of cash and light it on fire. To do so is to show yourself that you do not give a shit if you lose money. Whatever it is, face it and it will soon vanish. If you protect it, it will stay or grow stronger.

 

You seriously think fear in trading is an illusion?

[TheNegotiator 13]

If people lose money consistently with their strategies which have been previously profitable, they end up being paranoid then fearful. Generally, fear and greed imo has much to do with the market as they are the underlying drivers for the markets' existence. Fear in trading can be very direct and can be nothing to do with anything that you have previously experienced in life. Fear is a natural human emotion. It's true, fear does not play the same role in trading as it does in life, but it's certainly not an illusion.

[MightyMouse 12]

If people lose money consistently with their strategies which have been previously profitable, they end up being paranoid then fearful. Generally, fear and greed imo has much to do with the market as they are the underlying drivers for the markets' existence. Fear in trading can be very direct and can be nothing to do with anything that you have previously experienced in life. Fear is a natural human emotion. It's true, fear does not play the same role in trading as it does in life, but it's certainly not an illusion.

 

I have lost money consistently with strategies that are profitable. I, in fact, dumped a nice sum in the month of March. I will take the trade that lost me money 1000 if not 10,000 more times. I will admit that I am pretty pissed off that I lost, but not fearful to take the trade again and certainly not paranoid.

 

Fear is a natural human emotion when you are in danger. If fear is real in trading and it can't be removed, then explain to me what the danger is?

[TheNegotiator 13]

I have lost money consistently with strategies that are profitable. I, in fact, dumped a nice sum in the month of March. I will take the trade that lost me money 1000 if not 10,000 more times. I will admit that I am pretty pissed off that I lost, but not fearful to take the trade again and certainly not paranoid.

 

Fear is a natural human emotion when you are in danger. If fear is real in trading and it can't be removed, then explain to me what the danger is?

 

Really? Fear is very real in trading. Fear of losing money. Fear of being wrong. Fear that your strategy is ill-conceived. Fear that your account won't stand a string of losses. I think it's pretty clear that these are also dangers. However, fear doesn't help us at the time of placing a trade. It is pretty negative in the majority of cases. It can be a great motivator to do the work outside of placing individual trades.

 

MM I am happy that you seemingly have conquered your trading fears or even that they were never part of how you approached the markets. However, fear is certainly real and so are dangers when it comes to trading. Perhaps not in the sense of life or death, but they are real.

[johnw 10]

Really? Fear is very real in trading. Fear of losing money. Fear of being wrong. Fear that your strategy is ill-conceived. Fear that your account won't stand a string of losses. I think it's pretty clear that these are also dangers. However, fear doesn't help us at the time of placing a trade. It is pretty negative in the majority of cases. It can be a great motivator to do the work outside of placing individual trades.

 

MM I am happy that you seemingly have conquered your trading fears or even that they were never part of how you approached the markets. However, fear is certainly real and so are dangers when it comes to trading. Perhaps not in the sense of life or death, but they are real.

 

 

Neg,

 

Fear might be real to you and any other rational person, but it does not make it real to everybody.

To some people, life is an illusion, further compounded by believing this statement does not apply to them ... an illusion within an illusion ....

[Tradewinds 12]

Whether fear is real, not real, imagined or not, is almost immaterial. Your cash balance at the end of the day doesn't care; the market doesn't care. In some ways, I would tend to believe that fear in trading is not "real". But it all depends on how you define fear. If fear is defined as your body being in danger of being fatally wounded, then the market is incapable of creating fear. Yes, that's what I'm saying. From that perspective, the fear you or I feel while trading is not real. It is just one big lie that has been perpetrated by our confused brain.

[johnw 10]

Whether fear is real, not real, imagined or not, is almost immaterial. Your cash balance at the end of the day doesn't care; the market doesn't care. In some ways, I would tend to believe that fear in trading is not "real". But it all depends on how you define fear. If fear is defined as your body being in danger of being fatally wounded, then the market is incapable of creating fear. Yes, that's what I'm saying. From that perspective, the fear you or I feel while trading is not real. It is just one big lie that has been perpetrated by our confused brain.

 

If this is your belief, shouldn't you be telling this to yourself rather than posting it here on TL.

Or perhaps it is only a thought which you need confirmed by others before it becomes your belief.

 

Just a thought over lunch

[Tradewinds 12]

If this is your belief, shouldn't you be telling this to yourself rather than posting it here on TL.

 

Are you saying that I shouldn't be posting this?

 

Or perhaps it is only a thought which you need confirmed by others before it becomes your belief.

Just a thought over lunch

 

I'm not looking for confirmation from anyone. Part of my reason for posting it was to throw an idea "out there". I see fear as real. I would say that a large amount of fear is nothing but damaging and serves no positive purpose. Fear shoots adrenaline into the body, makes your heart pound, and diverts glucose to the muscles instead of the brain. Fear makes it more difficult to think well. So for tasks that need calm thinking, fear is counter-productive. In trading, fear is probably at least 98% destructive. There might be some benefit to fear in trading. I'm not saying that fear has no benefit at all in trading, but if I'm loosing money I don't need fear to motivate me to to do something.

[TheNegotiator 13]

John, I understand what MM is trying to get at in that fear is probably made more important than it needs to be in trading. It's just that fear is naturally a difficult emotion to overcome because it is so strong. I think people need to understand the nature of trading a little better before they enter into it headlong, then it'd be less of an issue.

 

TWinds I think fear is real however you look at it. You can think of it in terms of an individual trading-wise or a fear of being mortally wounded or even a fear of heights/spiders/confined spaces or even many other phobias which are seriously questionable to anyone BUT the person who feels them. You can also combine the general behaviour of traders and perceived uncertainty and fear in the markets. You see the market behaving erratically pretty frequently because of this. I would very much disagree with anyone that in market volatility where traders are uncertain, those with positions feel no fear at all.

[Rande Howell 10]

First. What is an emotion? It is not a "feeling". According to Steven Stosney (a pioneer in Emotional Intelligence) an emotion is any deviation from a standard sensorial part that the brain as acclimated to. You disrupt the standard pattern and an emotion automatically pops up. Fear is a particular emotional state among other emotional states and is often confused with them. Distinguishing between vigilence, concern, uncertainty, worry, and fear is vital for emotional sobriety in trading. Otherwise the brain/mind keeps associating primal fear of threat with risk management of uncertainty.

 

Last thing. To come to an effective understanding of emotion, consider this. An emotion can be broken down into 5 components. Motivation (what it is telling you to do), meaning (the beliefs that becomes fused to the emotion), arousal (the cranking up of an emotion preparing it for action in a direction goverened by its motivation), feeling (the subjective experience of the emotion -- that sinking feeling), and terperment (the genetics that influence pre-disposition).

 

In trading, beliefs of inadequacy, mattering, and worth become embedded as the meaning of the emotion. And out of this come a trader's fears. The fear that occurs in trading is not the "reality" that primal fear is useful for. But, when the trader becomes "possessed" by the meaning embedded into the fear, he will truly act as if a saber tooth tiger is in persuit of him. He has not distinguished fear from uncertainty in this case.

 

Rande Howell

[ahimsa 10]

Thanks Rande,for explain this concept,maybe sometime we all confused fear from uncertainty,and in trading this is better don't happen.because (please correct me if i'm in wrong)fear is a biological law roused from our brain in conseguence to the action that we'll go to do. maybe it's true that fear i s the only thing that we must fear.while uncertainty is the reflex to one of the side of our character.

 

cheers ahimsa

[Tradewinds 12]

. . . an emotion is any deviation from a standard sensorial part that the brain as acclimated to.

Rande Howell

 

Combat soldiers sometimes feel terrified of leaving the war zone. That is what they have become acclimated to. The world outside of the war zone has become something they can't relate to anymore. They become afraid of the "normal" world.

 

Even transitioning from non-combat maneuvers back to home base can be overwhelming. So that definition of any deviation from what the brain has acclimated to makes sense to me.

[Tradewinds 12]

. . . . the meaning embedded into the fear, . . . . .

 

Rande Howell

 

I'm thinking that we often learn things passively. The association of fear with a particular meaning probably happened involuntarily, and possibly without any real comprehension of how we are being influenced by circumstance or other people around us. We simply "take on" beliefs of those around us, not necessarily in any kind of logical way.

[Rande Howell 10]

I'm thinking that we often learn things passively. The association of fear with a particular meaning probably happened involuntarily, and possibly without any real comprehension of how we are being influenced by circumstance or other people around us. We simply "take on" beliefs of those around us, not necessarily in any kind of logical way.

 

Yes. Our biologic system simply shows up in the environment and adapts us to the circumstance. It's brillant. Now we have to accommdate the thinking brain.

 

Rande Howell

[Tradewinds 12]

Now we have to accommdate the thinking brain.

 

Rande Howell

 

We can take responsibility for our actions and behavior. But that doesn't just happen automatically. The will needs to be engaged. We can choose (engage the will) to use the thinking brain, rather than simply be a product of circumstance (random events).

 

It seems like there is an issue of dominance here. What are we going to allow to dominate us? Emotions can not be turned off. That is an impossibility. So it's an issue of what part of the brain is engaged during trading turbulence.

 

The brain can be trained. We have all had involuntary and passive training. So it makes sense that the brain can be actively trained. Of course, that takes actual work. Although inspiration helps provide a spark of power to overcome brain inertia. A brain at rest tends to stay at rest. :rofl:

[Rande Howell 10]

We can take responsibility for our actions and behavior. But that doesn't just happen automatically. The will needs to be engaged. We can choose (engage the will) to use the thinking brain, rather than simply be a product of circumstance (random events).

 

It seems like there is an issue of dominance here. What are we going to allow to dominate us? Emotions can not be turned off. That is an impossibility. So it's an issue of what part of the brain is engaged during trading turbulence.

 

The brain can be trained. We have all had involuntary and passive training. So it makes sense that the brain can be actively trained. Of course, that takes actual work. Although inspiration helps provide a spark of power to overcome brain inertia. A brain at rest tends to stay at rest. :rofl:

 

Fortunately we can deconstruct the meaning that has become associated within the elements of an emotion. To the brain, ambiguity comes out of uncertainty. And the brain is biased to seek certainty in the midst of ambiguity. Until this is retrained, the ambiguity triggers worry or fear. And there goes your trading. Fortunately, this relationship can be shaped to other ends. But it does require work and self honesty.

 

Rande Howell

[Ingot54 13]

So much theory ... so little substance!

 

Try stepping back a little and try to visualise what is going on.

 

The word "fear" is misused here, and in fact it suits some to call it fear. It makes the markets sound more formidable than they really are. That in turn gives the fear doctors a mandate to step in:

 

"Fear not! Thy redeemer cometh!" ... and so begins the therapy to overcome the enemy ... fear! Hundreds ... thousands of dollars later, the dog comes back to bite!

 

Unfortunately a bit more objectivity is required before swallowing what the book-sellers want us to believe - the myth that the markets are going to hurt us. The truth is the markets never hurt anyone - we place ourselves in positions where we are vulnerable outside our tolerance for risk.

 

This does NOT give rise to the emotion called fear at all ... do not believe the gurus.

 

The actual emotion is called "anxiety" ... heard of it before? Dealing with anxiety in trading does not require a deep analysis of the limbic system, the reptilian brain or the amygdala ... such things are a red herring ... a distraction.

 

While anxiety and fear may exhibit overlapping characteristics - some may say that fear gives rise to anxiety - they are very different emotions, as the experts should know, and should really be more up-front about in a discussion like this.

 

When looked at in the context of anxiety, the problems become a softer tone of red, and more assailable at least.

 

But the bottom line here is knowledge of your edge, and trust that your strategy in applying that edge, has a positive expectation over time. It's hard to be confident and anxious at the same time, but a complete absence of anxiety is probably unhealthy too. The point at which that anxiety becomes pathological will be different for every trader.

 

When that occurs, the trader needs to go back to the drawing board, examine the strategy and the edge, and re-test and understand its legitimacy - its place in his business. Then take responsibility for APPLYING that edge. It's a formula that works, and if it is not working, then go back. Which leg of the three-legged stool is rubbery ... broken?

 

A friend of mine from a few years back on another forum, said that a little paranoia is healthy in trading.

 

Anxiety is related to risk ... exposure. Traders who are risking only 2% should hardly be anxious, unless they are consistently failing to apply their proven edge.

 

Other than that, then the trader may be risking very large chunks of the account, and is anxious - very anxious about it indeed!

 

Cutting down on risk/exposure to a level that the emotions can easily accommodate, would be a logical first step. Learning to establish and trust the edge and the strategy would go hand-in-hand with this process.

 

Stop being in a hurry! Then half the problems will disappear, leaving the mind free to deal with the remaining issues.

[MightyMouse 12]

So much theory ... so little substance!

 

Try stepping back a little and try to visualise what is going on.

 

The word "fear" is misused here, and in fact it suits some to call it fear. It makes the markets sound more formidable than they really are. That in turn gives the fear doctors a mandate to step in:

 

"Fear not! Thy redeemer cometh!" ... and so begins the therapy to overcome the enemy ... fear! Hundreds ... thousands of dollars later, the dog comes back to bite!

 

Unfortunately a bit more objectivity is required before swallowing what the book-sellers want us to believe - the myth that the markets are going to hurt us. The truth is the markets never hurt anyone - we place ourselves in positions where we are vulnerable outside our tolerance for risk.

 

This does NOT give rise to the emotion called fear at all ... do not believe the gurus.

 

The actual emotion is called "anxiety" ... heard of it before? Dealing with anxiety in trading does not require a deep analysis of the limbic system, the reptilian brain or the amygdala ... such things are a red herring ... a distraction.

 

While anxiety and fear may exhibit overlapping characteristics - some may say that fear gives rise to anxiety - they are very different emotions, as the experts should know, and should really be more up-front about in a discussion like this.

 

When looked at in the context of anxiety, the problems become a softer tone of red, and more assailable at least.

 

But the bottom line here is knowledge of your edge, and trust that your strategy in applying that edge, has a positive expectation over time. It's hard to be confident and anxious at the same time, but a complete absence of anxiety is probably unhealthy too. The point at which that anxiety becomes pathological will be different for every trader.

 

When that occurs, the trader needs to go back to the drawing board, examine the strategy and the edge, and re-test and understand its legitimacy - its place in his business. Then take responsibility for APPLYING that edge. It's a formula that works, and if it is not working, then go back. Which leg of the three-legged stool is rubbery ... broken?

 

A friend of mine from a few years back on another forum, said that a little paranoia is healthy in trading.

 

Anxiety is related to risk ... exposure. Traders who are risking only 2% should hardly be anxious, unless they are consistently failing to apply their proven edge.

 

Other than that, then the trader may be risking very large chunks of the account, and is anxious - very anxious about it indeed!

 

Cutting down on risk/exposure to a level that the emotions can easily accommodate, would be a logical first step. Learning to establish and trust the edge and the strategy would go hand-in-hand with this process.

 

Stop being in a hurry! Then half the problems will disappear, leaving the mind free to deal with the remaining issues.

 

Depending on the type of trade, 2% might be too high. If you're taking 2-10 trades a day in my mind its too high. If you're taking 1 trade a day or a week 2% is much more manageable.

 

And you are right. Absolutely nothing happens to you if you take a lose.