Greed: The Most Dangerous Emotion

A greedy person and a pauper are practically one and the same.

The Swiss proverb above couldn’t be more true for us traders. As you may know, many traders (and their accounts) have suffered because of greed. In fact, this is how the saying “Bulls and bears make money; hogs get slaughtered” came about. No other animal embodies greed better than the hog, and in the trading business, the markets show no mercy to hogs.

What is greed?

The Merriam-Webster definition describes greed as “a selfish and excessive desire for more of something (as money) than is needed.” Sound familiar?

Let’s face it, it’s our desire to acquire handsome returns that drives us to trade, but this desire becomes unhealthy–even dangerous–when it is EXCESSIVE.

That is why greed is often considered the most dangerous emotion for traders; even worse than fear. Fear can paralyze you and keep you from trading, but your capital is preserved for as long as you keep your hands in your pockets. On the other hand, greed PUSHES you to act, in ways and at times when you shouldn’t; that’s why it is dangerous.

The dangers of greed

Greed prompts you to act irrationally. For traders, this usually comes in the form of overleveraging, overtrading, chasing the markets, or holding on to trades you know you should’ve exited long ago.

When you think about it, greed is not that different from alcohol; it can make you act foolishly when you have too much in your system. When it comes to a point that greed clouds your trading judgment, you are practically drunk with it.

Overcoming greed

Like many other worthy endeavors, overcoming greed requires a lot of effort and discipline. It isn’t easy, but it can be done. It’s all a matter of taming your ego.

You will have to admit and accept that you won’t make the right call every time. There will be instances when you won’t catch the market’s full move, or times when you will miss a nice setup altogether.

But that’s just how trading goes. When you accept that the market is bigger than you, and that you’re bound to make mistakes, then you’ll be more focused on following your trading plans instead of succumbing to greed.

A lot of successful traders have said that they’d rather be lucky than good. For them, it’s better to attribute success to luck than their own skills. It might not be good for the ego, but it’s definitely good for your trading psyche. And that’s probably one of the secrets of trading. Don’t be a hog and you won’t get slaughtered.

  • Gray_Hunter

    Are you telling us that Gordon Gekko was wrong? Surely not!

    Seriously though, greed has been the single biggest factor I have had to overcome in my own trading. Holding onto a 200 pip win because I’m too greedy to “lose” the extra pips if it happens to go higher is a classic for me. All too often, the run is over and I end up taking less profit than I would have if I had just been happy with the 200 pointer.

    What has helped me was learning to associate satisfaction with sticking to my trading plan rather than with the number of pips I make.

  • Manoranjan

    I am Manoranjan from Delhi. I Have Seen the result of Greediness on my Demo Account, That was Horrible I Lost $10000 Practice money just in 3 days. So I decided to Control myself after practicing Hard on demo Trading than Real. When i will be perfect then will Start Trading on Real money.

    • Jay Hawkins

      Manoranjan, what a sensible head you have on your shoulders. I only wish I could have the same amount of restraint

  • Safd

    I am victimized by my own greed I think I understand the market enough to profit but I need the money so badly because I’m poor and desperate that I over extend what is possible in profits. Thanks for the article.

  • Steven Goldstein

    Just a point I’d like to make. Greed is not actually considered as an emotion, rather it is a character trait people develop. – Emotions are inate to us, with a set of basic emotions, which like the primary colours, combine to form other emotions. – The closest true emotion to greed is desire, with greed being excessive desire. However desire is not accumulation, and greed can also be defined as a desire to accumulate.

    Further to this, in trading, we use the word greed often, but I tend to find that what we term greed is often ‘fear of missing out’, ‘fear of not making hay whilst the sunshines’, ‘fear of falling behind’. It may sound like I am being pedantic here, however it is emotions which drive our decisions and actions, not character traits. – Character traits are the results of developed and formed habits.

  • Cillian Murphy

    Overextending my profit target was (is) a big one for me. Looking back through my journal I can see that it generally hasn’t helped as much as I thought it would, though.

    The importance of journalling, eh??

    • pipcrawler

      Journaling… very important indeed :)

  • Sid

    Is it greed or Greece ?

  • AdamFX

    the correct saying is “Hogs get some while Pigs get none” when trading you MUST become a hog NOT a pig.

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