From a young age, we’re taught about controlling greed. After all, it’s one of the seven deadly sins! But, here’s the thing. It’s important to understand the thin line that separates desire from greed. Whether you aim to make trading a full-time career, are pursuing a passion or just wish to try your hand at trading, the desire to make money comes with the territory. This desire motivates us to strive harder, continuously increase our knowledge and hone our trading strategies. But, when this desire turns to greed, there’s some cause for concern.
So, here are a few things to keep in mind to control greed, without sacrificing the desire to round your bank account.
Recognize That There Are No Shortcuts
Many people enter trading with the aim of accumulating wealth in a short span of time. This misconception is fuelled by success stories that draw media attention. You may have read about Tim Sykes, who began trading when he was in high school and made his first million by the time he turned 21! Sounds terrific, right? But what many of us miss is that Sykes achieved this by trading judiciously and even making mistakes, losing money and tweaking his strategy.
Traders who try to get rich on every trade most often end up blowing their accounts. You need to be patient, recognizing that you’ll win some and lose some.
Don’t Give Up Your Strategy Too Soon
If you’ve taken the time to come up with a strategy and have tested it on various demo accounts – don’t give up on it at the first sign of a loss. Instead, remember that successful traders identify a strategy that works from them and stick to it. After a certain number of trades, they then assess what’s working well and what could be tweaked before entering the live markets again.
Manage Open Positions with Take Profit Orders
Most traders place stop-loss orders to prevent excessive losses. Stop-loss orders get automatically executed if the price of an instrument falls to a pre-specified level, limiting the trader’s loss on a position. While this is common, it is not so common to place take profit orders, which is also an important element of risk management when trading.
A take profit order gets automatically executed when the price of a security rises to a pre-specified level, and the position is closed for a gain. Don’t hesitate to book profits, as the market may quickly turn in the opposite direction while you wait for more profits.
Use Leverage Wisely
Leverage is an excellent service offered by brokers. It enables you to control and trade a huge amount of money, with only a fraction of the total being available in your account. But, leverage often fuels greed, which makes you overlook the risks involved. And, dreams of reaping substantial gains can quickly turn into a nightmare of huge losses if the market doesn’t move in your favor.
The psychology behind greed is interesting. It’s human nature to want more, but when it comes to trading it’s really important not to let it get the better of tried and tested decision making!