The most reliable long-term profits in day trading come from disciplined use of a reliable strategy. That being the case, it can be all too easy to neglect such an approach when psychological pitfalls like either fear or greed enter into the picture. Guesswork, driven by emotions, has no place in successful day trading. Sadly, this is often just what results when blind avarice or abject fear drive a day trader’s decisions. More often than not the best thing to do when emotions threaten to override your usual disciplined trading is to stop trading and deal with you emotions. Start trading again only when you are back to your emotional norm.

The Fear-Greed Spectrum

Everyone would like to get rich and, ideally, do so quickly and with little effort. The problem comes when we let ourselves believe in get-rich-quick approaches. Greed can become addicting if we achieve even a little success with risky approaches to day trading. On the other end of the emotional spectrum, irrational fear can virtually paralyze the typically rational day trader. For example, a trader who has been greedily increasing their position size in a rising market may get caught in a sudden correction. Their losses may be substantial. Unfortunately, they do not go back to a disciplined trading approach but rather freeze up in fear of making any trades. While both ambition and anxiety are normal parts of life, when they tear a day trader away from a steady and disciplined approach, they become dangerous.

Fear: The Paralyzer

The old saying credited to Baron Rothschild is that when there is blood in the streets, that is the best time to buy. The point is that when many traders succumb to fear is commonly when the market offers the best profits for a steady, disciplined trader. Risk management is important at all times and especially in extremely volatile markets. When one has losses in their day trading it is often because they were using an approach that suddenly became obsolete. Modifying one’s strategy, trading in simulation until profits return, and then resuming trades with small positions is commonly a better answer than freezing up with fear just when a market offers unique opportunities.

Greed: The Impulsive Temptress

When we hear about a successful trader on the news it always seems to have been so easy. When a market is going steadily up or down, profits can be routine. Here is where temptation often enters the picture.. The trader (or investor) starts thinking that by increasing their position sizes and taking on riskier trades that they can make a lot more money and do it quickly. The desire to get rich quick overcomes their normally disciplined approach to the market. An old saying in the stock market is that you do not have a profit until you take a profit. Holding positions just a little longer in order to eke out a greater profit often ends up with the trader losing all of their gains unless they have been diligently resetting their stop-loss targets. The point is to set realistic goals no matter how tempting the market may seem. Never forsake discipline in applying time-tested trading strategies. Always remember that for each of those folks who made a killing on a set of risky trades that there are dozens who have gone back to their former jobs substantially poorer and, hopefully, wiser.

Strategies to Overcome Fear and Greed

Trading success over the years comes from following an established approach. There is a process of picking trades, entering them, managing the trade, and exiting with reasonable profits. Where both fear and greed mess this up is when the trader abandons their previously successful process. Thus, a way to avoid letting fear and greed get in the way of successful trading is to always adhere to every step of the process of a trading strategy. When emotions, fear or greed, become overwhelming, there is nothing wrong with walking away from the trade station. Take a walk, talk to someone, take a vacation, or see a mental health professional if the issue is extreme. If your emotions are taking over your life, deal with them before returning to your normal trading routine.

Psychological Resilience and Consistency

When times get stressful some folks deal with their emotions better than others. This is called emotional resilience. Emotional resilience is the ability to keep functioning despite crazy situations and emotional stress. President Kennedy called it grace under pressure in his book, Profiles in Courage. To a degree this can be a learned skill and therefore something that gets better with practice. An emotionally resilient day trader sticks to their normal processes in the face of fear, greed, volatile markets, and other trading threats. Sticking to one’s trading routine and experiencing normal profits and losses then helps reinforce this approach even when the market is collapsing all around you.

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