Greed and fear in trading. These two emotional states can actually appear simultaneously and alternate. Let’s delve deeper into this:
➡️ 1. Greed when fearing greater losses and refusing to cut losses
- This is a manifestation of the fear of loss, but it is masked by greed. When an investor sees their position in the red, they often hope that the market will turn around and they can break even or even make a profit. This mentality often leads to refusing to cut losses, as they don’t want to face the realization of the loss, even though it may be the most reasonable decision under the circumstances.
Consequences of not cutting losses:
- Losses grow larger: The market may continue moving against the prediction, and the loss will deepen, increasing emotional pressure.
- Stubborn mindset: The investor becomes more reluctant to cut losses as the losses mount because, at that point, accepting the larger loss becomes emotionally harder.
- Ignoring the original strategy: The failure to follow the pre-set strategy (cutting losses on time) leads the investor away from their trading plan, resulting in inefficient capital management.
Solutions:
- Plan ahead of time: Set stop-loss points beforehand and follow them strictly.
- Ask yourself when losing: Has the market changed, and is the decision not to cut losses based on new analysis or just hope?
- Risk management: Limit the amount you’re willing to lose on each trade and don’t let losses exceed that amount.