In trading, Greed and Fear are often condemned by many people. Greed is thought of as a companion of Fear, and both are considered to be bad when found in traders. I want to propose a different way to think about Greed and Fear. I agree with Mr. Gekko, that Greed is good, and I will go even further to add that Fear is good, also. However, they are only good for you if you are greedy and fearful of the right things. Otherwise, they are vices and not virtues.
My trading psychology in the past has always been this:
A mindset of maximizing my profits (or winning trades) and minimizing my losses (or losing trades) right now on THIS trade.
This mindset is focused on the outcome of the current trade. I believe that an outcome-based mindset (whether it’s P&L focused or win/loss focused) is where Greed and Fear cause us to fail as traders. The flipside is that this same mindset is also the source of profit for many successful traders, as they fade the losers.
I submit that traders SHOULD be greedy and fearful, and that the following should be the mindset for a successful trader’s Greed and Fear:
A mindset of maximizing your exposure to profit opportunities (Greed), and minimizing your exposure to loss opportunities (Fear) at all times and in all trades. (more…)