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The Psychology of Greed
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The Psychology of Greed

  #1 (permalink)
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The Psychology of Greed

We all know trading is full of mind bends. One of the big ones and most deadly is greed.

I have a friend who bought a penny stock symbol AIPN. Herbie was a regular guy with savings of around 100k and an average paying job. Herbie put that entire 100k into AIPN.

That 100k became worth (drum roll please) 8 million dollars. Herbie was convinced he could get 10 million out of it and would not sell a share. He was the invincible big man rolling in dough. So he thought. His friends begged him sell half or at least take 1 million dollars off the table but Herbie wanted 10 million dollars. Herbie ended up with $0 when like most penny stocks AIPN collapsed into oblivion.

Herbie has a cruddy job and virtually no savings years later. Talk about regret.

This a true story. My friends and I have a saying whenever we get into a good investment. As profits rise we always say lets don't pull a "Herbie" and take some off the table.

"The day I became a winning trader was the day it became boring. Daily losses no longer bother me and daily wins no longer excited me. Took years of pain and busting a few accounts before finally got my mind right. I survived the darkness within and now just chillax and let my black box do the work."

Last edited by liquidcci; September 13th, 2011 at 03:20 PM.
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  #3 (permalink)
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Greed in Action - American Job Creator Heroes


My favorite example of greed is David Koch. He has a net worth of 44 billion dollars and sends his slaves propaganda packets telling them who to vote for and explaining why they should not ask to be paid more.

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Zondor View Post
My favorite example of greed is David Koch. He has a net worth of 44 billion dollars and sends his slaves propaganda packets telling them who to vote for and explaining why they should not ask to be paid more.

Zondor I am speaking in reference to trading. Not political players we might not like or like. Don't get me started on how liberals are destroying the U.S. as I have some very strong opinions. But alas never ends well as a discussion on a message board. Would rather this thread not go that direction so lets pull it back to greed and how it can effect trading. No disrespect for your views just know where this can go.

"The day I became a winning trader was the day it became boring. Daily losses no longer bother me and daily wins no longer excited me. Took years of pain and busting a few accounts before finally got my mind right. I survived the darkness within and now just chillax and let my black box do the work."

Last edited by liquidcci; September 13th, 2011 at 04:54 PM.
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On a more day-to-day basis many on the forum can relate to, you can relate greed to trying to make back all your losses in "one fell swoop". If it is logical that the market will hit your price points, then fine. But if you are purposely trying to get the market to give you something solely based on greed, then you are in trouble.

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Big Mike View Post
On a more day-to-day basis many on the forum can relate to, you can relate greed to trying to make back all your losses in "one fell swoop". If it is logical that the market will hit your price points, then fine. But if you are purposely trying to get the market to give you something solely based on greed, then you are in trouble.

Mike

So true Mike. Revenge trading is one of the most deadly cycles to get caught up in. Someone might succeed to catch back up on a particular day but eventually that habit can hurt you in a big way.

"The day I became a winning trader was the day it became boring. Daily losses no longer bother me and daily wins no longer excited me. Took years of pain and busting a few accounts before finally got my mind right. I survived the darkness within and now just chillax and let my black box do the work."
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liquidcci View Post
His friends begged him sell half or at least take 1 million dollars off the table but Herbie wanted 10 million dollars. Herbie ended up with $0 when like most penny stocks AIPN collapsed into oblivion.
.

I always get out too early and have regrets about the money I left on the table.
Starting to convince my emotional brain that I still made money. Then, of course,
all the gurus say "let your profits run" as if that was so easy

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Cerberus View Post
I always get out too early and have regrets about the money I left on the table.
Starting to convince my emotional brain that I still made money. Then, of course,
all the gurus say "let your profits run" as if that was so easy

Cerberbus that can be a problem as well. It is why I went to probability trading with good stats I can just leave everything alone.

"The day I became a winning trader was the day it became boring. Daily losses no longer bother me and daily wins no longer excited me. Took years of pain and busting a few accounts before finally got my mind right. I survived the darkness within and now just chillax and let my black box do the work."
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Cerberus View Post
I always get out too early and have regrets about the money I left on the table.
Starting to convince my emotional brain that I still made money. Then, of course,
all the gurus say "let your profits run" as if that was so easy

this is exactly the case for me too.they say "cut your losses and let the profits run"
but when i see some small profits i take them because i am afraid that the trade
would turn against me.better little profits than losses.
i don't want to be someone like herbie..you must set a target before you enter a trade.

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This whole issue of greed, how far to let prices run in your favor, when to take profits...take them early or late, or do I let a winner turn in to a loser in order to give it maximum room to run....I think these are the fundamental questions we must answer for ourselves BEFORE we can become profitable as discretionary traders.

I can see the logic of building a strat that has valid entry criteria and letting it run until a mechanical stop takes you out of the trade or a predetermined profit target is hit at some distance away from the entry. The key here would be to just keep your hands off the bot and let it work adjusting for market conditions once in a while.

However, from a discretionary standpoint, at least for me, I have come to the conclusion that I cannot hold for large moves because of personality, therefore, I must be comfortable with smaller profits and more trades. Otherwise taking the first 10-20 or even 30 ticks out of a 200 tick CL move and watching it go without me will cause more grief than a loser will.

At that point, being comfortable with the 10-30 tick winner and then being willing to wait until the next set up comes along has lead to the reduction but not the elimination of greed from my trading. As I have come to accept my role as a scalper, my desire for big wins has diminished as well as my angst while watching one in progress.

The knowledge that I can wait for as long as it takes to make my daily trading goal is comforting. I am good with the idea that I can never know how long or how far a move may go, therefore I assume it will only go just far enough to give me my scalp, no further or less. If I believed it would go less, then why take the trade and if further, why wimp out for a small profit. The rational mind says hold on and let it run, but those bastard emotions dictate otherwise. Therefore in order to appease both rational and emotional elements of my psyche, I choose smaller targets and more trades.

If I were Herbie in the OP opening story, I suspect I would have left a lot of that money on the table, but once in it for the big win, I also know I would have had a trailing stop, perhaps a to aggressive one but still I would have gotten out well before the equity high and well before the equity low.

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