Fear can make you get in too late, sell too early, completely miss the next opportunity, get shaken out or not believe what you are seeing. Greed can make you stay in too long, add to a losing trade or not believe what you are seeing.
Add a little hoping and wishing into this recipe and you have a situation that describes a lot of peoples trading day.
The biggest losers play of all losers plays is to average down, that is to buy more when the price is dropping. They justify this by claiming their average price is now lower than it originally was. I have no problem buying if the price dropped but now it is rising again. But I never add to a losing position. Sure you may get lucky sometimes and it'll work out. But the probabilities are going against you. I'll sell or short it and then buy it back cheaper. When you buy going the opposite way all you are doing is tying up your money, preventing yourself from putting that money into a winning trade and setting events in motion that are heading for a double or triple loss.
A trader in this situation is having both fear and greed attacks. They are afraid to sell and take a huge loss and greedy because they are still seeing dollars signs by buying cheaper than they did before.
It is more logical to short sell stocks that are falling.
Traders should actually fear greed by reminding themselves that taking profit is an excellent way to keep your trading account growing.
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I never, ever, EVER average down. If the trade breaks down and hits my exit price, I simply walk away. I rather trade my way out of a small loss, than be in a losing position that's bleeding me and emotionally draining me.
The hardest thing for me lately is taking an early loss, then trading my way back to my daily profit goal. I typically work so hard just to secure break even that when I get it, I take it, and close out the trade. Then fear sets in and I get gun shy. I've been killing my chance for daily profit chasing break even.
To fix this I have been trying to go in full position to get break even (if I'm in the hole) or secure my daily min. and let the other half continue to work. So far I haven't been able to catch a run that's lasted long enough for this to work on a larger time frame. However even on the short 5min time frames it feels a lot better than my typical FULL IN and FULL OUT trades. I figured out a few months ago that I got stuck in scalp mode all the time and couldn't hold a trending trade and it's hard to break the habbit. If I do see a trend, even low volume, I haven't had the gumption to trust it lately. Then I end up chasing the trend: buying a break out, bailing on a pullback, and thinking the trend is broken not realizing it was just a pullback. It's def. fear of losing. Fear of giving back what little profits I've made. I have a very hard time holding 500 and 1000 share trades for longer than 5-10min. The partial out has been my best idea for re-programming myself. I'm open for other suggestions!
I've worked hard to get up to trading 1,000 share size. I'm sure it still scares me, but I feel I'm becoming more and more desensitized to it.
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