Fear and greed in the market

Greed and fear.

Two emotions that play a bigger factor in people’s success or failure than any other emotion we experience. Both fear and greed refer to an internal emotional state. Tens of millions of dollars have been made and lost on these 2 emotions alone. In trade, in business and in relationships. So why do so many educational courses, stock trading books and online courses avoid this topic?

Perhaps they do not avoid the topic of emotions. Perhaps by teaching certain techniques and skill sets to their readers, they are actually dealing with the emotional side of trading!

It is common knowledge that emotions create a certain amount of pleasure or displeasure. Emotions are also known to be associated with mood, spirit, desires and passions. The list goes on… So how can we as individuals develop a skill set to manage these emotions in business, in trading and in life?

Charles Darwin argued that emotions do serve a human being, and this is true when our emotions have evolved over 2 million years. Shouldn’t we use these amazing skills to our advantage instead of blaming them for making bad decisions? I believe that poor decision making has nothing to do with emotion, but only laziness and lack of planning.

A lesson from one of the greats!

I would be doing my readers a disservice if I didn’t mention Warren Buffett’s strategy. One of the most successful investors today. Warren Buffett followed his strategy and made great profits. Warren Buffett showed us how important and beneficial it is to stick to a plan. When deciding whether to invest in a company on their own, Buffett and his partners follow a few simple guidelines, one of which involves trying to determine the company’s lifespan.

When the market is flooded with greed, the same can happen with fear. When a stock suffers large losses over a long period of time, the overall market may be more fearful of suffering even greater losses. But excessive fear can be a serious mistake. This is when successful investors and traders make their move. Real money is made here.

Just as greed dominated the recent cryptocurrency boom or fear dominated the headlines about the possible outcome of a trade war, investors are quickly moving from one “safe” investment to another. It becomes a constant game of cat and mouse.

This flow of money into the stock market shows a complete disregard for the many technical indicators that continue to scream that a correction is imminent. Retail investors seem to be delighted by the influx of “ALL-TIME HIGH” headlines. Should retail investors fear a major correction? Of course, losing a large portion of your retirement portfolio is a tough pill to swallow, but it’s even harder to digest the prospect of losing the huge gains the market currently offers investors of all experience levels.

Having a clear understanding of my own personal goals, understanding my success and making a list of my OWN wants and needs instead of taking other people’s dreams and trying to achieve them has been a huge factor in extinguishing the flames of greed in my own trading and daily decision making.

I’ve also added a link to must-read books that have been helpful in my journey of managing my emotions in decision-making. I will update this as I see fit..

One technique I have found helpful is to be mindful of how I measure success, wealth, goals, and most importantly, happiness. In this day and age, it is very easy to let outside influences affect our happiness and success. Social networks make us happy every day with the success of others.