Greed and fear index
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 inner emotional state. Tens of millions of dollars have been made and lost based on these two emotions alone fear and greed. In trading, in business and in relationships. So why do so many educational courses, stock trading books and online courses avoid this topic all together?
They may not shy away from the topic of emotions. Perhaps by teaching their readers certain methods and skill sets, they actually address the emotional side of trading head-on!
Fear and greed:
It is well known that emotions create a degree of pleasure or displeasure. Emotions are also known to be linked to mood, state of mind, desires and passions. The list goes on... So how do we as individuals develop the skill set to navigate these emotions in business, trading and life?
Charles Darwin argued that emotions did indeed serve a purpose for humans, and rightly so, as our emotions have been evolving for over 2 million years. Shouldn't we be using these amazing skills to our advantage instead of blaming them for bad decisions? I am convinced that poor decision making has nothing to do with emotion and everything to do with laziness and lack of planning.
Lessons from one of the greats!
I would be doing my readers a disservice if we didn't mention Warren Buffett's strategy. One of the most successful investors of our time. Warren Buffet stuck to his strategy and profited greatly. Warren Buffett showed us how important and beneficial it is to stick to a plan. When Buffett and his partners decide for themselves whether or not to invest in a company, they follow a few simple guidelines, one of which involves trying to determine the company's lifespan.
Once the market is overcome by greed, the same can happen with fear. When a stock suffers large losses over a long period of time, the overall market may fear further losses. But too much fear can be a serious mistake. It is at this time that successful investors and traders take action. This is where the real money is made.
Just as greed dominated the recent cryptocurrency boom or fear dominated headlines about the potential 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 rush of money into the stock market shows a complete disregard for the many technical indicators that continue to scream that a correction is inevitable. Retail investors seem overjoyed by the flood of headlines that are ALL HIGH. Should retail investors be overwhelmed by fear of a major correction? It's true that losing a large portion of the value of your retirement portfolio is a tough pill to swallow, but even harder to digest is the prospect of missing out on the huge gains that the market currently offers investors of all experience levels.
Having a clear understanding of my own personal goals, understanding my success, and creating a list of my OWN wants and needs, rather than accepting the dreams of others and trying to achieve them, was a colossal factor in extinguishing the flames of greed within my own. trading and day-to-day decision making.
I've also added a link to "Must Read" books that have been beneficial in my journey of reigning in my emotions while making decisions. I will update this as I see fit..
One method I have found helpful is to be mindful of how I measure success, wealth, goals, and most importantly, happiness. It is all too easy these days to allow external influences to affect our happiness and success. Social networks bombard us with the successes of others day after day.
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