Managing your Trading Expectations – A stop Loss is simply the cost of doing business.
Any seasoned trader would have experienced the psychological emotions of fear and greed. Greed may also be defined as the fear of not having enough.
The definition of greed when trading:
In trading, greed is the excessive desire for more profits, leading to irrational decisions like overleveraging, overtrading, ignoring stop-losses, holding losing trades too long (hoping they’ll turn around), adding to winning positions (doubling up), and abandoning your trading plan for bigger, riskier gains, ultimately turning good trades bad and risking significant capital.
Greed is dangerous because it clouds judgment, making traders act impulsively and irrationally, transforming potentially profitable strategies into financial ruin by disregarding sound risk management principles.
The potential results of greed when trading include:
- An intense Desire for Wealth: An overpowering drive for money, blinding traders to risks.
- Overleveraging: Using too much borrowed money (leverage) to increase potential profits, vastly
increasing potential losses. - Overtrading: Entering numerous trades unnecessarily, hoping to maximize overall gains, often without
proper analysis. - Ignoring Risk Management: Disregarding stop-loss orders or position sizing rules to chase larger
profits. - Holding Losing Trades Too Long: Refusing to accept a loss, hoping the market reverses, which can
lead to bigger losses. - Adding to Winning Positions (Doubling Up): Investing more money into a winning trade, expecting it
to continue, which can quickly turn profits into a loss. - Chasing the Market (FOMO): Jumping into trades at the wrong times or not according to your trading
system, fearing missing out on potential gains. - Abandoning Your Plan: Deviating from pre-defined entry/exit points and risk rules.
Some true stories of Greed
- Doubling Down on a Loss: One recurring story involves a trader (Barry, in a specific example) who,
after a successful start with a large account, made a quick $130,000 profit. Driven by greed and
overconfidence, he lost a trade and, to immediately get the money back, he “doubled up” his
position (a highly risky strategy). This led to a massive $900,000 loss in a single week. This
demonstrates how chasing losses and abandoning a trading plan can lead to losses. - The “Holy Grail” Illusion: A common story involves novice traders who find initial success on a
demo account and convince themselves they’ve found the “holy grail” strategy. Rushing into live
trading with undercapitalized accounts, they take on excessive risk (overleveraging) in the
desperate hope of getting rich quickly. When the inevitable market fluctuation occurs, their
accounts “melt” down to zero because they ignore basic risk management rules like stop-losses,
often watching their balance evaporate while hoping for a reversal. - Ignoring Profit Targets (The “Pig” Mentality): Many stories describe traders who, when a trade is
going well and approaching its pre-set profit target, move the target further away because they
believe the market will continue to run in their favour. This “pig” mentality, as the saying goes
(“Bulls and bears make money; pigs get slaughtered”), often results in the market reversing, and
the trader ending up with a much smaller profit, or even a loss, than they would have if they had
stuck to their original plan.
The Key Lesson
These stories consistently emphasize that the biggest challenge in trading is not a lack of strategy, but a lack of emotional discipline. Greed pushes traders to take on too much risk, disregard stop-loss orders, and overtrade, ultimately resulting in the loss of their capital.
Success in trading is less about finding a perfect strategy and more about managing risk, setting realistic goals, and adhering strictly to a trading plan.
Scammers love greed and an individual’s temptation to make a “quick return”
Some examples that scammers use include:
- The “Guaranteed Returns” Forex Scam
One man was contacted “out of the blue” by a stranger offering advice on binary options, cryptocurrency, and forex trading with promises of “guaranteed returns”
He invested a few thousand dollars and watched his “profits” grow on an online platform that seemed legitimate. Encouraged by the apparent success, he invested more money at the scammer’s insistence.
The red flags appeared when he tried to withdraw his funds. He was told he needed to pay “withdrawal fees or commission” on his profits first. When he refused and demanded his money, his account was suddenly locked, his “profits” vanished, and the scammers pressured him to invest even more to “reverse the situation,” at which point he realized it was all fake.
The Deepfake Celebrity Endorsement
A self-employed tradesperson named Des lost £76,000 after seeing a fake advert on Facebook that used a deep-fake video of a well-known money expert, Martin Lewis, and Elon Musk, to promote a non-existent Bitcoin investment scheme. Des, who was looking to earn a little extra money during a slow period, clicked the link and was quickly contacted by a professional sounding “financial adviser.”
He started with a small investment, and when it seemed to generate a return, his trust grew. The scammer pressured him to invest more, leading Des to take out four separate loans totaling £70,000. The scam was only uncovered when his son overheard a phone call and noted the unprofessional background music, prompting Des to contact the authorities.
These stories highlight that scammers are manipulative and often target people when they are emotionally vulnerable or in need of financial security. If you encounter an investment opportunity that seems too good to be true or involves unsolicited contact, it is crucial to stop, check with a trusted, independent source, and report it to the relevant authorities.
Some suggestions to manage greed include:
- Stick to Your Plan: A clear plan with defined entries, exits, and risk rules removes emotional bias.
- Use Stop Losses: Automatically limits potential losses on any single trade.
- Set Realistic Goals: Prevents the endless pursuit of unrealistic profits.