Two emotions that have a greater impact on human success or failure than any other emotion we experience. Fear and greed both refer to an inherent emotional state. Tens of millions of dollars have been made and lost solely on the basis of these two emotions. In trading, business, and interpersonal relationships. So, why do so many educational courses, stock trading books, and online courses completely avoid this topic?
Perhaps they are not avoiding the subject of emotions; rather, by teaching their readers specific methods and skill sets, they are confronting the emotional side of trading head on!
It is well understood that emotions cause a certain amount of pleasure or pain. Emotions are also known to be linked to mood, frame of mind, desires, and passions. The list continues... So, as individuals, how do we develop a skill set to navigate these emotions in business, trading, and life?
Charles Darwin argued that emotions served a purpose for humans, and he was correct, given that our emotions have been evolving for over 2 million years. Shouldn't we be using these incredible abilities to our advantage rather than blaming them for poor decision making? Poor decision making, in my opinion, has nothing to do with emotions and everything to do with laziness and a lack of planning.
A Master Class From One of the Greats!
I would be doing my readers a disservice if we did not mention Warren Buffett's strategy. One of our generation's most successful investors. Warren Buffet stuck to his plan and profited handsomely. Warren Buffett demonstrated the importance and benefits of sticking to a plan. Buffett and his partners follow a few simple guidelines when deciding whether or not to invest in a company, one of which is attempting to determine the company's longevity.
Fear can overwhelm the market in the same way that greed has. When stocks suffer large losses for an extended period of time, the overall market may become fearful of further losses. However, being overly fearful can be disastrous. At this point, successful investors and traders alike make their move. This is where the big bucks are made.
Investors quickly shift from one """"secure"""" investment to another, just as greed dominated the recent cryptocurrency boom or fear dominated headlines about potential trade war outcomes. It becomes a never-ending game of cat and mouse.
This inflow of capital into the stock market demonstrates a complete disregard for many technical indicators that continue to warn of an impending correction. Retail investors appear ecstatic with the flood of headlines that read ALL TIME HIGH. Should retail investors be paralyzed by fear of a major market correction? Granted, losing a large portion of your retirement portfolio's value is a difficult pill to swallow, but the prospect of missing out on the massive gains the market is currently offering investors of all experience levels is even more difficult to swallow.
Having a clear understanding of my own personal goals, success, and creating a list of my OWN wants and needs rather than taking other people's dreams and attempting to achieve them has been a huge factor in putting out the greed flame in my own trading and daily decision-making.
I've also included a """"Must Read"""" link. Books that have helped me in my journey of controlling my emotions when making decisions. I'll keep this updated as needed.
One method I've found useful is to be cautious about how I define success, wealth, goals, and, most importantly, happiness. It is far too easy these days to let external factors influence our happiness and success. Every day, social media bombards us with the success of others."""