How to Limit Your Greed in Trading // Ep. 84

In This Episode

• The emotional component to greed
• Why trading journals are essential
• Why people dislike certain currency pairs

How to Tame Your Greed While Trading

Trading is a tricky balance between fear and greed.

On one hand, it pays to be aggressive when the markets are favorable to your style of trading. The dark side of that is that we can get too greedy and overtrade, which leads to revenge trading and big losses.

So in this episode, we talk about the best ways to overcome trading greed and how to think about the markets so you aren't susceptible to overtrading.

Read the Transcript

Walter: Hi, Hugh. In this episode we want to talk about greed. As traders sometimes we have this problem of trying to overcome the need to win and this feeling of greed. Trying to really take as much as we can out of the market. So how do we overcome that?

Hugh: I think it comes down to practice.  What did your back testing tell you? What has your demo trading told you? You are trading your small account. I mean, there is a certain line obviously that you have to tightrope walk across. There is being aggressive and making profits when they're available. And then, there's being safe and not taking undue risk.

So I think it just comes down to what does your testing tell you? To a certain extent what does your gut tell you? Being able to discern which is which. I think a lot of people get too greedy in the beginning because they think they know how trading works and they don't really.

But, once you've been through a few boom and bust cycles or whatever, you can kind of tell when it's a good time to be greedy and what's a good time to lay back and just kind of play it safe. What do you think?

Walter: I feel like we don't have, this might be kind of weird but I feel like we kind of don't have a say in it as traders. I feel like we kind of have to just let the market decide when, you know, the big winners are going to come. It is almost like a letting go thing. Sort of like you're sailing, today is not going to be a windy day. So you are not going to go very far.

There's nothing you can do about it. You can put your biggest sale up I guess but that's you know, that's all you can do really. Just kind of drift along. I feel like part of my growth as a person, as a trader, has been learning that I need to just focus on what I can. Which is the rules of the strategy.

So whatever strategy I am using, I execute those entries and those exits exactly as I should; exactly as I have back tested and I don't deviate from that. That is why I record all that data in my journal. However, you know there are times when you're going to do everything perfect and the last couple weeks have been really rough for me.

In terms of win rate, I have to examine that. It is not that I want to change what I am doing. No, no, no. I just want to make sure that my exits and my entries have been where they should be. What is going on? I mean, you've probably seen this. When you are at your best, everything's rolling and everything's clicking and you're making lots of great trades and all that, the markets are really, you know, you're really locked-in with the markets.

You are doing well. Those periods are often when you're really ripe for making mistakes. It kind of sows the seeds for greed or mistakes or whatever in the near future. So to me that has to be part of the awareness too. How am I feeling today in terms of my trading prowess? Where am I at? On a scale of one to ten, you can go back and look at that too in your journal.

You can see if you tend to make mistakes when you've had a winning streak. You're feeling really confident and your numbers are really high. Or, do you tend to not take trades when your confidence is really low? Do you tend to just let trades go that you should have taken but you didn't because you were three instead of an eight or whatever. Because you've had six losers in a row.

So that's the kind of thing that I think we can see like the data is there. I do believe part of it is just letting go and just going, “Look, because we don't know”. You just never know. If you are a trend follower you just don't know. You do not know when that trade is going to come. When that 20R or 15R trade is going to come and make all the difference for your year. You just don't know when it's going to be.

For me, those trades happened back in February, March like the best months of the year so far. They were February, March that's when the markets were trending and I was all in. So that was great but now it's kind of you know there's a lot of drifting around and reversals and stuff.

Asia goes one way then London goes one way then New York goes the other.  It is just kind of whipping around. It's kind of difficult unless you are trading the, you know, the perfect time frames for those setups. I guess in essence, I would just say record your emotions because they can impact your execution.

Also, maybe think about trying to figure out ways that you can relax and just let go. Know that it is not really entirely under your control. It is part of training. It is just learning to be that person that says, “Okay, this is what the market's going to give me now and you know my system. I am doing it. I am doing it myself. I am executing. So I know the system works. It's just the system needs certain market  conditions to work well.” So there you go.

Hugh: Totally. I think people beat themselves up too much. They think it's an insult on their intelligence if they lose a trade or they have a losing streak.

Walter: They take it personally whatever is going to happen, that is right. It's funny like I used to do that. I used to get mad at currency pairs. You know all that Swissie, that Loonie. I want to get revenge or whatever like, “What?” I don't even think about it. I honestly don't even think about that. I really do not think of them as adversaries or whatever.

I think of it more as myself as the one that I need to deal with. It is not the Loonie or whatever you know or the Swissie or the Pound or whatever. It's crazy.

Hugh: That's a good point. All right. Thanks, Walter.

Walter: See you.

Hugh: All the information in this podcast is for educational and informational purposes only and is not trading or investment advice

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