Read to know reasons why emotional trading of greed and fear must be avoided to avoid losses.
Stock traders biggest enemies are greed and fear. I have written a lot on why you must avoid greed while trading and why greed is not good for stock trading. Greedy traders never make money.
Even if you trade in fear you will not make money trading, as trading is a business where risk is involved. Those who fear taking risk never start a business and end up doing a job to earn money.
Both greed and fear are emotions which can hamper in trading profits. Therefore any kind of emotional trading must be avoided.
Stock trading and investment is a proof that many investors start buying stocks at their top and start selling at the bottom.
Buying stocks at their top is Greed.
Selling stocks at their bottom is Fear.
Why investors buy when stocks have reached at their top? Because of the greed that it will go up more and they can make money fast.
Why investors sell when stocks have reached at their bottom? Because of the fear that it will go down more and they can lose more money fast.
Once the trade is over after a few days both of the above traders get frustrated and rue (bitterly regret) their decision.
Buy when everyone is selling and sell when everyone is buying is an very old saying but it is rarely practiced by investors. This is being practiced very well by a well known and the richest investor in the world – Warren Buffet. Read this – Warren Buffetts boring brilliant wisdom and smart billionaires buy when everyone else is selling.
Impact of Media in Investing
A lot of investors who are glued to television screens and listening to business channels get caught in the media hype and start emotional trading as per the news.
For example if experts predict a company’s stock will go up because of great quarterly results, they immediately buy their stock option or its shares in cash with a strong feeling that they will make a great amount of money. It is a different story what happens after that. If the quarterly results are not as per the market expectations, the stock plunges, investors and traders lose. If the results are as per the market expectations the stock does not move much because traders cannot decide whether to buy or sell, again the emotional investors lose money. Only if the company quarterly results beats the market expectations by a very big margin, it’s stock goes up, but does not fly high making a very small profit for the investor and traders.
Option traders have more troubles at hand. Once the news on the stock is out, its implied volatility falls and Option prices drops. This can be dangerous as time has also passed as well as volatility dropped means most of the option premium gets eroded making either a very small profit for the option trader or a small loss in-spite of their trade assumption being correct.
Investors can hold for some time more, but emotional traders do not have patience. Seeing a small profit they exit, or exit at a small loss.
Both of the above type of emotional traders gain nothing out of their trading over the long term.
99% of day traders or intraday traders are emotional traders and take their trades based on emotions rather than for a reason or calculations. No doubt the world is yet to see a very wealthy day or Intraday trader who has generated a lot of wealth by day trading only.
These are the reasons why stock traders must avoid both greed and fear of trading. If you are an emotional trader or investor please avoid these kind of trading.
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Hi, I am Dilip Shaw, owner of this website. I am a trader like you. I have been trading since 2007, but lost a lot of money till 2010. I then stopped trading and studied options like college exams. Started trading again from 2011 and never looked back since. I did a lot of research, read books and did countless paper-trading before being profitable. You can read about me here.
My conservative trading course since 2014 is helping many retail traders just like you who have a job or business make consistent profits like this:
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Difference Between Other Courses And Mine
What Others Charge for Courses
You can do this course from your home. Some traders make amazing profits like Rs. 16.26 lakhs profit in 5 days though results may differ for all.
This course helps you learn to trade conservative option strategies for monthly income. Once you finish the course you can start trading immediately. You can start trading from any day. No need to wait for expiry. You will make profits consistently.
This course is good if you have a regular job or business. You DO NOT NEED to monitor your trades every second.
What You Get?
Before reading please understand that for all 5 strategies, strike selection will be taught. Strike selection while trading Options is the most essential part to succeed.
You get two conservative non-directional strategies on options, one conservative stock option strategy and two conservative directional strategies on Future & Option combination.
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9. Scaling Possible
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To know more Call/SMS/WhatsApp me on 9051143004 or email me now. I know English and Hindi.
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P.S: So many years of trading has thought me one thing - it is always better to make small profits month after month, rather than lose money month after month trying to make too much money. It never happens. But small money accumulated month after month can become very big in only a few years.
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