The Greed

Whenever a trader or investor sees their money growing and has made a good enough return to sell the position and take their profit, the question arises: how much is enough?

It is natural to get excited about the possibility of making more profit when the trade is going well, and this is the most common obstacle to closing the position. However, it is in our human nature to enjoy it so much that we want it to last forever and this is where greed clouds all common sense, which warns us that the winning situation will not last indefinitely. In these moments it is INDISPENSABLE to follow the rules of the trading plan: if your system or strategy indicates that it is time to close the operation and collect your profits, do not keep waiting just for the illusion of earning even more money. If you let yourself be fooled by greed you will believe that you will keep earning some more time and then some more, and so on and so forth. This attitude will only cause the gains you have made to vanish.

Greed is excessive ambition, it is wanting more and more and more and always more and more. Greed is self-destructive, and if you are learning trading it is because you have a healthy ambition to improve your quality of life and your financial situation and that of your family. Therefore, falling into greed only destroys you and yours.

This is why many professional traders, when they have a good streak, stop trading (for example, they have won 5 trades in a row or more, the number is up to you, it is just an example) so that they are not invaded by greed or because they realise that they are becoming greedy and they know that the best thing to do is to stop. They know that if they fall into it they will risk more money than usual, they will overtrade, or they will break some rules, and the dire consequences that this brings.

Many times greed is generated by having “left money on the table” and its respective pain of guilt and regret. This happens when you are in a trade that is going well, and there comes a moment when you notice enough reasons to get out of it (e.g. a very strong resistance if you are bullish) and you close it. Then you see that the price is still rising but it is too late to re-enter and you have already exited. This often leads to bitterness, guilt and regret, which then in similar future situations can turn into greed for fear of “leaving money on the table”. However, the good news is that it is a pain that is easily learned to overcome when you learn to close a trade and not stare at what happened next, or even when you close your computer when the trade is closed.

How to control greed?

To control greed and not get carried away by it we must always know when enough is enough, taking profits from a trade and then looking for new opportunities, without staring at how much more we could have made. This should be fixed before entering: analyse where your target profit would be and liquidate the position when it reaches that level. This is why it is very common to use target when entering a trade. While it is true that it can move, it makes you less greedy because by visualising it you realise that the price is not likely to go MUCH higher, so it makes it clear that the profit will not be extremely large. Also, by already knowing in advance where to take profits thanks to your strategy and analysis, it prevents you from overstaying your welcome, and therefore taking unnecessary risks.

There is a common phrase “target is target” and it is ideal to remember it when you close a trade with a profit, and then go on to look for other opportunities without stressing about how much more you could have made.

Professionals focus on the next trade, and try to forget about the closed trade, whether its outcome was good or bad. They focus on making good trades, and the money will follow.