Greed and fear are the major players in the stock market. These two emotions are the driving force behind almost all market participants – Institutional mangers, stockbrokers, investors, traders and yourself.
You might be saying to yourself that greed and fear will never get in the way of my trading, but believe it or not they will be. It is not something to be ashamed of. It is something you have to admit to, come face to face with, if you are to become a successful stock trader or investor.
How do fear and greed look like in the stock market trading field?
You have been watching a particular stock for some time now. It has set up perfectly, so you pull the trigger. You bought it at the perfect price and now it is moving higher just as you thought it would.
Now your greed interferes and you believe that this stock price is shooting high. So you decide to buy more. another scenario is that your stock advances a few points beyond your exit price that you have planned for. Greed convinces you that that stock will continue to move in an uptrend tomorrow, so you hold on.
When stocks make strong moves to the upside greed from all the cumulative market participants joins the move.
Stock prices usually fall faster then they go up, and when this happens, fear now steps up to the plate.
Let us look at the example above, where your stock went through your get out price and you held on because greed was by your side. The next morning the stock price gaps down. There is heavy selling all morning long. Greed is telling you to hang in there the price will come back. The price keeps going down, now you get a knot in your gut, and your knuckles are turning white. Fear is now by your side, but by now it is too late, your nice profit has turned into a loss.
Everyone goes through this until they have mastered the ugly faces of greed and fear. Master this and you are well on your way to becoming a successful stock trader.
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