Tag: fear and greed

In just ten minutes per day, you can learn to apply repeatable laws of money that can help you get wealthy.

How can this be true? Getting wealthy is a matter of making money, keeping your money, and growing your money. 

Even if you are making money by working at a fast food restaurant, you can get rich over time, if you simply develop the habit of saving just $20 per week – and carefully make your savings grow with just a little bit of interest, compounded, year after year. 

The trouble that most people have – that prevents them from getting wealthy – is they do not feel good about keeping their money –  and they have not practiced feeling good about watching their money grow.  

Instead, they feel good by spending their money.  They act on the slick sales message of debt-pushers ‘get it now with easy payments’, and end up paying interest on that purchase… in effect, they are compounding the growth of someone else’s money! 

Keep watching the other videos in this series as a way to reinforce and practice rehearsing good feelings about keeping your money and watching it grow. 

Before we can truly overcome the two mistakes that all traders make, we need to understand them.  This understanding comes from learning new knowledge, and second, from practice.

Mistake One

The first category are mistakes that we get punished for. We get punished by losing more money than we should have. Most people will learn from those mistakes over time – or they just quit trading because it’s not working for them. We’ll cover some specific strategies to help you prepare in advance to keep your losses small. It’s not wrong, and it’s not a mistake to take losses in trading – but if you are making the dollar cost averaging mistake we’ll cover in a moment, then your losses are much bigger than they should have been.

Mistake Two

The other category is harder to identify; these are mistakes we don’t get punished. That is, when we make this mistake, we simply don’t get the benefits we should have. We may never become aware of this mistake, because there is never a signpost that pops up to say  ‘You didn’t get all these extras!’. Later in this video series, we’ll review a pro tactic that overcomes this mistake and makes winning trades bigger!

If you are making the mistakes where you’re losing more money than you should have, and you’re also making the mistakes where you’re not making as much money as you could have – then you want to break even in your trading, but you are struggling consistently, and it’s deeply frustrating for you.

Mistakes When Losing

Let’s say we have two traders that go into an identical trade that moves against them; that is, they buy the same coin at the same place at the same time and price goes against them.

Right away, the successful trader is fearful of losing money – and so he sells out of the position quickly. The unsuccessful trader starts to get greedy because he sees that the price is now lower than it “should be” – and it’s even a bigger opportunity to ‘buy the dips’.  

They may rationalize: ‘So if I bought 100 coins at 100 satoshi and the price is now 80 satoshi, then I could buy another hundred coins and I would average out the price… therefore I would have two hundred coins at an average price of 90, so really I’m only down 10’, and, such a trader might begin to imagine potential profits as a way to avoid dealing with the current loss; ‘When the price rebounds I’m going to make it killing because I’m into this position when it was even a bigger bargain!’

In reality, this trader is not managing risk correctly. 

If the price should continue to go down – the trader now has a bigger position when he’s losing. As the price goes down, he may finally get to where he’s feeling so much pain that he has to get out of the position, and ends up with a much bigger loss than he should have. Naturally, this trader will feel discouraged and kind of panicky when he trades another position. 

And actually, that emotion is a good guide.

You want to be feeling confident and prepared when you are ready to put on a trade.

Mistakes When Winning

Let’s go to the second example where both traders buy the same coin, at the same time, at the same price – and it goes with their expectations so they’re both profitable. The successful trader now feels greedy – because he’s been proven correct – any buys even more of the coin to have a larger position.

The unsuccessful trader, however, may be fearful of losing his profits and quickly cashes in the position – too soon. As time goes on the price continues to go in the direction they wanted, the unsuccessful trader now will feel even more anxiety watching the price go… and will head into the next trade with more uncertainty, fomo and doubt.

And so many traders gets killed in the market – by making mistakes that cause greater losses and making mistakes that reduce their profits.

Both of these mistakes are the result of trying to do the wrong job.  Most new traders believe they are responsible for making money in their trading… but this is not our job at all.  Successful traders know their job is all about managing risk.  Reducing risk on losing trades and increasing risk on winning trades.

While you are safely adding to your savings each week, you can gain more perspective on the challenges and difficulties of trading.  You can overcome mistakes.

When you start taking smaller losses when you are wrong, and start gaining larger profits when you are correct, added together, you end up creating a cycle of steady growth of your investments, you can trade larger volumes – and dramatically expand your future wealth potential! 

Both paper trading and backtesting are a good starting approach. You can learn and prepare for each stage of the trade before risking real money – yet a simulation lacks the realism… Paper trading and backtesting do not include the all important emotions of fear and greed that so often cause new traders to make bad choices and lose money. 

Now you know how the average trader is affected by fear and greed and how these emotions work against them, holding them back from making great profits, and often causing them to lose their money.