Apr 29

Greed and Fear

full time traderYesterday’s trade, 04.28.14, on NFLX was my demonstration of greed. Well, come to think of it, it comprises both greed and fear.

I remembered my coach for options trading strenuously discussed about greed and fear when trading the market. He told us that by becoming a successful trader albeit full time trader, one need to master #1 “Money Management” and #2 “Greed and Fear”. So do most of the trading psychology books out there discussed and prophesized about these two elements. The two taboo words in the universe of stock, forex and options trading. Both greed and fear are inter-related.

Greed is when an opened position records a profit with the trader unwilling to sell, hoping it will still rise higher in price and hence pocketing more profits. Trader would keep adjusting the sell price upwards hoping it hit his/her next target price. This is Greed. Fear is when an opened position goes against your expectation and emotions started to conjure inside you, swirling and eating you from inside until you break and decide to abandon all planned strategies and system, if any, and act impulsively to relief oneself from the pain. This is Fear.

Back to yesterday’s trade as example. I opened the position with just 1 contract, chose the closest strike price and paid for high option’s premium price of $6.70. When the position turned green from red, with the chart signals continued to trend upwards, I adjusted the sell price from $7.00 to $7.15 to $7.30 and lastly to $7.50. I was greedy. The trading showed that that I was the only one on queue at $7.50 but the order did get to fill. Price then went spiraling down from $7.45 to $7.10 then $6.65. Fear kicked in. I was constipating then. Emotions started to swirl and play in my head, condemning myself for not letting go when I got a cool profit to pocket. The position then went back up to $7.30 and got filled at $7.50. Fear of losing again, conjured me up and I was relieved to be able to close the trade with a profit of $72 from a negative position 5 minutes earlier.

Lesson: First I was GREEDY, then FEAR kicked in and I closed off the position without looking at the chart. But after I sold the position, the price shot up from $7.50 to $9.30 under 30 minutes and $13.50 by closing bell. So, was I right to sell the position at $7.50?

This is GREED and FEAR working hand in hand, without fail in any trade, to mess the mind of a full time trader.

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