Three emotions that drive most traders and investor—fear, greed and hope.
By Daniel at 19 December, 2009, 12:08 pm
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You enter markets on the hope of gains, too often get greedy in expecting profits, and finally liquidate on fear. Your brain has not changed much from the time of the Neanderthal man who greedily hunted wild animals for food, and ran in fear from beasts and neighboring tribes that threatened his survival. The Neanderthal “rat” brain is still within you— as powerful as it was over 100,000 years ago. As society changes and evolves, the quality and quantity of threats to your survival change along with it. Yet, the primitive emotions of fear and greed remain the same. The history of panics and crashes in the financial markets since the inception of trade reflects this ever-changing cycle of fear, greed and hope.
This is a large part of your challenge and journey to master the art and science of trading. You must be prepared to wipe away any preconceived notions about what the markets will do or not do, and replace them with what you will do or not do. You must be able to “fade” your own emotions and be unafraid to go against prevailing opinion. You learn that you will almost always feel fearful when you should be feeling greedy and vice versa.
To do this successfully and not recklessly requires discipline and practice. Don’t let anyone tell you it’s easy. It just plain isn’t. Simple? Yes. But not easy. It requires counterintuitive thinking and a good understanding of your own psychology and mass psychology. It takes great study of yourself, getting into and through your ego and really knowing who you are. The journey within is the most challenging and profitable trip you will make in your trading career.
- W. D. Gann
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It’s not about Greed
There are between 7 and 14 articles and blogs a day all identifying the crisis of 2008, CEO behavior and bankers bonuses as all about greed. We are quickly moving towards an accusatory cultural position that if one gets too much (a relative term) then one is filled with greed. It is similar to the diagnosis of narcissism that has been grossly misused and misapplied. Misused to the degree where if one is selfish or lacks empathy or takes more, one is called a narcissist. This places the accuser in the position of blaming those who have more and fails to understand what motivates them to engage in this behavior.
What brought about the banking crisis in America was not about greed, it was about the pathological need to increase one’s status. Studies have demonstrated that high levels of testosterone do not necessarily lead to a macho man hell bent on being aggressively consumptive but a man excessively focused on status, filled with envy, and an overwhelming desire to have what the other guy has. Consider this: At a “gin and tonic” party at a mansion of a successful banker an attendee reported the following. “After I got my drink our host led us to his greenhouse and showed his magnificent collection of valuable and delicate orchids. It was his hobby and he would travel the world collecting rare and exotic plants. Upon return to the house I could not help but notice two sets of women; an old or original group of wives at one end of the large room and a group of trophy wives at the other end, nervously eyeing each other.” What drives these men to engage in one-upmanship is not greed — but one-up-man ship status. They see their colleagues with a more expensive car, they start thinking about getting a one, they see a colleague with a jet and they have to have one too, they see a colleague with a beauty and they want one. Houses, cars, wives, art, orchids, watches, office, etc.; these are status symbols and for these men they are exceedingly important. They become a measure of their self worth. The parties, the country club, the university club, the yacht club, and the workplace are all places where executives parade their stuff. Many suggest this is nothing more than narcissistic characters impressing others to obtain love. But this may not be the case. They live and work within a culture that is status driven and issues of exclusion and inclusion are associated with the attainment of status. In this culture those who have more create envy and they aggressively engage in the struggle for ever higher status. The “my d–k is bigger than yours,” is ever present. The truth of the matter is underneath they believe they will always an inadequate d–k.