Greed. The emotion that new traders have no control over and experienced traders battle with on a daily basis.
It's everywhere in trading. An inherent part of the environment.
"Take as much as you can as fast as you can", your mind screams. At times, it seems as if you might be your own worst enemy.
In my trading career, these five scenarios have consistently played out over and over again.
When entering a trade goes immediately against you.
We have all been there before. You tell yourself, "don't worry, it's about to correct".
It doesn't correct. In fact, it's moving down. You watch in horror as the price falls further and further.
I did the TA? It was supposed to go up! Your greed doesn't want to take the loss – if you hold, it might recover. You wait just a little longer.
The floor drops and you lose it all. Profits that took you over a week to build vanish in an instant. It's devastating.
I cannot begin to tell you how many times this has happened to me in the past. It's terrible, but the opposite can sometimes be even worse.
When entering a trade goes immediately in your favour.
Your coin rallies and your prediction was correct – well done!
You let this winner run. You're up 5%, 6%, 7...
And then the voice creeps in — why exit now when there's a possibility of so much more? You feel confident and at this point you're easily convinced it's going to the moon.
But then it doesn't. Your profit is gone and you're left stunned. Wishing for what could have been.
Sound familiar to you? Both these scenarios become losing trades more often than not and it's only your greed that prevents you from losing small and earning consistently.
How do you fix it?
1) Recognize your behaviour
Both of these scenarios used to happen to me all the time in my first year trading.
The key thing is that I didn't know just how often until I started logging my trades in a journal. It doesn't matter what kind of journal you keep. Paper, digital, vlog, whatever - the key thing that matters is that you capture the details of your trade and, most importantly, write down why you entered the trade in the first place.
By doing this, you are holding yourself accountable for every trade you take by recording and then analyzing your trade history.
I found that by going over my trades on the 1st of every month was a great way to take a step back and spot patterns over time, without over-optimizing on the natural variance of day-to-day trades.
2) Use bracket orders
A trading strategy where you use both a stop-loss and a take-profit at the same time. In this way, the price is bracketed on either side.
Placing bracket orders forces you to know what your risk to reward ratio and exit strategy is before you even enter a trade. All decisions are already made – so your emotions are left out of the picture.
Often this means you don't even need to watch your trades, just let the probabilities of your trading strategy play out.
Note: not all crypto-exchanges allow you to place bracket orders. Bitfinex allows you to do this only in their margin account, but in order to do it on Binance, you need to use a tool like Signal. It's easy to connect and the interface is much nicer than using Binance directly. I use TradingView for charts and Signal to enter and exit all my trades.
3) Ladder your entries
New traders are often fixated on finding the tops and bottoms.
They think - this next trade is the one I've been waiting for. I can't miss out. Let's go!
But this is greed, again. You go "all in" because this is the one. Kind of absurd when statistically, it's impossible to know for sure if this is the bottom or the top of a trend.
The solution is to split your buy-ins. By setting multiple buy orders at different prices, you don't feel the same pressure. You can still enter right now - calming the voice in your head - but also get a better price should the bottom go lower.
4) Don't be emotionally attached to a stock, company, or cryptocurrency
As a day-trader that uses technical analysis to enter and exit trades, I believe fundamental analysis should be left for investors and long term traders.
When newer traders win, they fall in love with the coins they traded. When traders lose, they hate the coins they just traded.
This emotional attachment gives you a personal bias and if left unchecked, you can find yourself drifting towards the coins you previously made money with, even if the set-ups are not valid.
The fix is to go back to step one and recognize this behaviour is happening in the first place. Write that in your journal. Realizing it is happening is the first step. Now that you are aware of it, pay attention and catch it when it's happening to you.
5) The power of compounding. How much profit is enough?
Is 1.5% enough? I'm guilty of this even today. My profit is at 3% but I'm still holding on, thinking it could go to 10%.
So I sit on it. I go to the gym, cook some food, then check the graphs.
Damn - I'm now down 1%. It was greed again that stopped me from taking the 3%. This FOMO happens all the time.
The fix is simple, have a set goal in mind of how much you want to earn in the next year. Choose an exact number. Ambiguity is your enemy.
It helps to internalize that what you're doing is more than taking small gains. You're executing a strategy which compounds over time.
Many factors like consistency, coin liquidity, and exchange fees are also factors, but this is just an example of what is possible with just 1% earnings. So really, no need to be greedy.
6) Paper trade
I know, I know, it's just not the same.
Where's the thrill, the excitement! Well actually, that's exactly the point in paper trading.
Build habits of acting purely without emotion. Focus and follow your trading plan.
You probably already use TradingView, but what you might not know is that you can use it for paper trading. It's a hidden gem and really powerful.
Although you probably don't need me to convince you why paper trading makes sense. It's common sense. Prove your strategy works before risking real capital.
Have patience and take your paper trading seriously. You will soon see how exciting it is to see your fake money and confidence growing in unison. I still trade with paper today when I am testing new strategies.
7) Simplify your trading strategy
More is not more when it comes to your trading strategy.
Bogging things down with too many rules means more decisions before and during a trade. This brings in emotional trading, "what if I bend just this one rule, I'm following all the rest".
Remove redundant indicators that say the same thing. You will find the ones you do have become clearer to read.
Choose a simple trading interface instead of using Binance with its slow loading, convoluted orders, and limited functionality.
Keep simplifying your strategy until you could explain it to a 12-year-old. Then keep it that simple.
Hopefully this helps you become a better trader.
It may seem long, but each step is absolutely necessary. Go back and re-read each step until it sticks, feel free to do that as many times as it takes – that's why I made this list for you!
Every time you improve a key area, your results will improve too. Greed is one of those key areas.
It takes time, discipline and experience to overcome greed but the important thing is to recognize it and always be conscious of it. Now go get out there!
Hey, I'm Joeal. I'm a full-time trader and life-long learner. I write articles sharing my insights and commentary on the exciting world of cryptocurrency.
The software featured in this article is Signal and it's something I use with my trading often. I am an avid fan and so I started publishing my content on their blog.
If you aren't already signed up and are considering it, please use my link. It isn't much, but helps me stay caffeinated while I write these articles!