But just because we have the emotions
of fear and greed doesn't mean that we should act on them.
On the other side were the behavioral economists, who believe that we are all irrational animals, driven
by fear and greed like so many other species of mammals.
This is common because many investors
let fear and greed cause them to make bad decisions.
But what we see as price action is simply the result of masses of people acting on basic psychology based
on fear and greed.
There is a constant tug of war going on inside our brains
between fear and greed depending on the market environment.
Being aware of
how fear and greed can impact trading, exercising discipline, and developing trading rules and plans are crucial to a trader's success.
But you would still have to exercise discipline to
avoid fear and greed — and thus my three example rules above.
Not to make it too simplistic, in order to learn to trade one must look
at fear and greed.
Kahneman suggests that «expert» traders generally do not do better than «the market» and that stock trading algorithms work better than decisionmaking by investors influenced by their emotions of
fear and greed in random succession.
Roland Barach provides a collection of 88 lessons explaining the pitfalls, such
as fear and greed, that hold many traders back.
Bubbles inflate with greed and deflate with fear; whether the mechanism by
which fear and greed are expressed is active or passive is a secondary issue.
Take some time journaling your emotions about money by asking yourself where you learned personal definitions
for fear and greed.
He typically does not have the constitution to control his emotions in investing;
fear and greed overcome many institutional investors.
I know last month's article was a little depressing but it was important and here's why: We take daily actions in pursuit of a better life, to move away from pain and towards happiness, while the underlying emotions of
fear and greed drive us.
Individual investors tend to make mistakes because they let feelings like
fear and greed infect their judgment.
More from Investor Toolkit: Bonds aren't always safest bet for every investor's portfolio
Separating fear and greed from your investment decisions The top 10 investment ideas for 2017: UBS
Even if an investor has a sound strategy, its implementation often fails
because fear and greed overtake rational thought.
This quarter has seen a great deal of ebbing and flowing for the global equity markets as China, the Fed, the ECB and BOJ have
created fear and greed in copious amounts.
The future can not be predicted because it does not exist yet and there are endless variables that will play into how prices play out due to news, buyers and sellers motives, along with
mass fear and greed.
Success in trading is built on a strategy that matches your personality, time frame, risk tolerance and more importantly the proper trading psychology of
negating fear and greed.
If you don't have skill, far better to buy and hold, with a moderate asset allocation to stocks, thus moderating volatility, and
moderating fear and greed in the process.
In fact, simply managing to eliminate some of the
usual fear and greed that dominates the average investor's thinking and decisions will put you well ahead of the game in the end also.
I think poker and trading (and even investing) are v similar: You need to know the numbers cold, know how to read people (/ sentiment / markets),
eliminate fear and greed and have airtight money management.
I know Stuart will want to have a big argument with me about this, but confidence is the core of the markets, and the media like to
feed fear and greed, one is lack of confidence, the other is surplus.
Meanwhile, CNNMoney's
fear and greed index, which, in addition to factoring in the VIX, also tallies a number of other market indicators such as market breadth, stock price strength and the demand for safe havens, just hit its gloomiest «extreme fear» level.
Investors swing like pendulum
between fear and greed, and between euphoria and depression, and between disbelief and skepticism.