Fear and Greed the Mental Demons of Investing

Where are you with regards to your level of trading? Are you a beginner, an experienced trader, or an old pro who's been investing for years.

Regardless of you investing experience, you have the two demons of fear and greed sitting on your shoulder giving you free advice whether you want it or not. The hope is that with more experience, you can keep these two emotions and check and be successful with your trading. Of course, success means are you making money?

The first of these emotions, fear, haunts us all the time. Once you recognize this fact, you have a better chance of controlling it. Fear is a wonderful emotion to have. Think about it. Without fear, we would do many foolish, dangerous things in life and probably not make it past our 16th birthday. In fact, I suggest to you that without fear, the human race would cease to exist. Well, that may be a little strong, but I think you get my drift. Our job at traders in the stock, futures, or options market is to use fear as a helper not a hindrance. What will my wife/husband say when I lose money; what will my buddies think when they find out my market gains are much smaller then theirs; how can I buy that nice (fill in the blank) if I lose these trades. You know the questions that race through our minds as we analyze our investing decisions. Let fear help you by forcing you to make careful choices.

Fear can keep us from making good decisions. You need to analyze the situation, gather as much information as you can about your investment knowing that you'll never know everything and act. No decision has even been made with complete knowledge. Set up whatever safeguards that work for you and take the trade.

Greed, the second emotion, can be worse than fear. Remember that movie with Michael Douglas about Greed. He was some sort of investor as I remember and said something to the effect that Greed was good. I don't remember his reasons, but they seemed logical at the time. Greed does have it benefits. Achievement happens because of greed. We want to finish projects well because of an expected increased payoff be it money, fame, or whatever. So maybe Michael Douglas was right...greed is good.

Greed can also keep us from making good decisions. You won't sell an investment when it goes up because "it'll go higher, I'm sure", you say to yourself. Once again, you need to analyze the situation and gather as much information as you can and act on the data you have.

The bottom line is regardless of your investing level the twin emotions of fear and greed will always be your partners advising you on your trading decisions. Be aware of their presence and put them in their place...as two advisors who have a place at the table but only at the far end.