Right from when we were young, we’re taught that greed is a vice that we have to get rid of. But in spite of all the warnings, we all seem to have it in us, especially when money is involved. Most of us want to make as much money as possible within the shortest possible time, and we see the financial market as the place to achieve that. But the irony is that if we don’t control greed in trading the markets, we end up losing the one we have.

Approaching the market with a get-rich-quick mentality is one of the greatest mistakes a trader can make, but many have been deceived by false ads and fake stories of people who became overnight millionaires trading the markets. If you are serious about trading, ignore such stories because greed will be a major hindrance to your trading success.

In fact, if greed gets the better of you in this game, you can make some dangerous trading errors that can blow your trading account, which is why you need to do everything you can to put it in check. All traders that have achieved success in the market were able to control their greed and other trading emotions.

In this post, you will learn the following:

  • What greed is in the context of trading
  • How it can affect your success in trading
  • The things you can do to put it in check

What is greed in trading?

Greed is a natural emotion we all have, which manifests as an intense desire for something. It seems to be encoded in our DNA, and we all manifest it to varying degrees in different situations. But most commonly, our greed comes to bear when money is involved. In the context of trading, greed is one of those emotions that can facilitate your failure if left unchecked.

It can easily make your profitable trades end up as losses and turn your bad trades into catastrophic losses. Aside from fear, greed is the worst trading emotion to deal with, and it represents one of the biggest obstacles to your success.

In fact, it may even be considered more dangerous than fear because fear can keep you from trading — which means, your capital is preserved at least for that moment. Greed, on the other hand, propels you to want to get more money and avoid losing, which makes you take irrational trading decisions that can lead to more losses.

As you can see, greed can be very dangerous for a trader. It is like being under the influence of a substance; it feels like you have this force inside of you that obscures your rational mind and makes you act irrationally in a way that can seriously hurt your trading account.

If you want to be a successful trader, you must find ways to control greed and stop it interfering with your trading success. One thing you need to realize is that in the world of forex trading, no one trade can make you rich. So, there is no need trying to force money on every trade and risk destroying your trading account in the process.

The truth is, success in forex trading is a long-term thing. It comes gradually when you consistently overcome your greed and do the right thing. As they say, “Slow and steady wins the race.” But most new traders don’t understand this. They are often carried away by their desire to make money so quickly that their accounts inevitably pay for their greed because the market does not pity greedy traders, which is why they often say: “Bulls make money; Bears make money; but Pigs get slaughtered.”

But how do traders manifest greed in trading, and does it affect their trading results? Keep reading to find out more.

How does greed in trading impact your success?

There are many ways greed manifest in trading, and some of them may be quite subtle to notice. For many, it can come in the form of chasing the markets, entering the market before a trade setup is completed, using too much leverage, overtrading, averaging down, or holding on to trades that should have been closed long ago. While there may be other ways, here, we will discuss these ones:

Using too much leverage

One of the most common ways traders, especially new traders, manifest greed is by using too much leverage. In a bid to make more money in the shortest possible time, some traders place trades that are too big for their account size. The ideal thing in trading is to risk about 1% of your trading account in a trade, but these fellows can risk up to 20 or 30 percent of their account in a trade.

For instance, someone with a $1,000 account balance may place a trade of one full lot size with a stop loss of about 30 pips. This amounts to risking $300 in that one trade, excluding any possible slippage. The implication is that if the market moves by more than 30 pips against the position, the follow’s account balance is down to $700. With two more losses, the trader is out of the game.

Chasing trades

This can happen to anybody; it is a common temptation in the market. Imagine waiting for a long time for your trade setup to complete. Then, when you stepped to the fridge to get some water, the setup was completed, and the price sped off. On seeing that, you may be tempted to still place an order, but that’s greed taking over you.

If you go ahead and place the trade, you will find it difficult to place your stop loss at the right place. But the greed in you won’t allow you to consider that. All your mind is in the opportunity to make money that you’re about to miss. What you don’t know is that the market never ends; another opportunity will still come.

Jumping the guns

Greed can make you enter a trade earlier than is required — when your trade setup has not been completed. It could be that the signal has not fully formed or that the last candlestick that completes your setup has not closed. That last candlestick needs to close before placing a trade because everything can change by the time that candlestick closes.

A candlestick may start as a bullish one and look like it will complete a bullish setup, but by the time it closes, it may turn a bearish one and making the setup invalid. Traders know that the most logical thing to do is to wait for the candlestick to close, but when their mind is clouded with the prospect of making money, they try to enter earlier.

Doubling down on losing positions

Here is how it goes: you enter a trade, and the price starts moving in your favor almost immediately. Boom, your greed receptors are activated, and you start calculating how much profit you will make before the trade has even gone halfway. The next thing, the price turns against your position and start moving aggressively.

But you are not going to have that — not this profit you have already calculated and are eagerly anticipating. Once the price pauses and looks like it’s going to turn back to your direction, you add another trade, hoping that, by the time the price gets to the breakeven of your previous position, you are already in good profit with your current position, so you can close both positions and come out with a profit.

Pure greed in action. What your greed-controlled mind cannot consider at that moment is that the price can still continue moving against your position, magnifying your losses.

Carrying more trades with floating profits

What happens here is that the trade is already in good profit, but in a bit to make more money, the trader adds more trades, hoping to use the floating profits of the first trade to carry the later trades. This is pure greed in action. While some experienced traders may use this strategy to make more money if well planned, inexperienced traders will likely get in trouble trying this because they won’t know when and how to do it right.

For a new and inexperienced trader, the normal approach is to keep things simple. Adding this sort of complication is purely out of greed, and it never ends well.

Not taking your profits at the right time

We often hear this in trading: “Let your winners run.” But does that mean that you shouldn’t take your profits when it is the right time? No way! Not taking your profit or locking some at the right time is a sign of greed. Letting your profit run means to trail your profit — in other words, you lock some profits with the trailing stop.

Don’t ever allow a trade that has made a reasonable profit turn to a loser unless you are practicing set and forget style of trade management. Allowing a winner to turn to a loser when you’re actively managing the trade is an act of greed. The worst part is that you may even be tempted to double down as the price continues to move against your position, compounding your problem.

Overtrading

Trading all the time because you want to make more profits is another sign of greed. The normal thing is to find the market session that fits your strategy and trade during that session. The other time is used to rest and do your research on the market in readiness for the next trading day.

Attempting to trade in a market session that is not suitable for your strategy can lead to exhaustion, lack of preparation, and unnecessary losses — all because of greed.

Ways you can control greed in trading

Now that you have seen how you can manifest greed in trading, let’s take a lot at the various things you can do to control it. There are many ways you can control your greed, but you should focus on just these 12 tips:

1. Realize that there are no shortcuts in trading

Don’t start trading because you think it is an easy way to make money and become rich in no time. It is never as easy as you think. The truth is, forex trading is the most difficult way to make easy money. Of course, you can make money from trading the market, but you must put in the hard word first, learn how things work, start small, and grow gradually.

Be patient; you have to learn the ropes first. You must learn what works in the market and what doesn’t, and greed is one thing that doesn’t work in any way. There is no short cut to wealth creation, so go through the right process. Acquire the skills first. Then test the waters with a little amount to start mastering your emotions when your money is at risk.

2. Create a plan and trade your plan

For you to achieve success in your trading, you must have a trading plan and be disciplined enough to follow your plan. A detailed trading plan specifies what you do at every point in the market so that you don’t start making a new decision at the heat of the moment. With that, all you have to do is to just implement what is already there in the plan.

That way, you will be able to keep your greed at bay if you are disciplined enough to follow your plan. If you don’t have a trading plan, you won’t know the exact thing to do when the market is acting in a specific way, leaving very important decisions at the mercy of your emotions, especially greed. Creating a trading plan is easy. It includes your trading strategy, trade management plan, money management, growth plan, and the kinds of markets to trade.

3. Stick to your trading strategy

Trading the forex market is like swimming in a shark-infested ocean, and your trading strategy is like a compass you use in navigating your way in the ocean. Without a strategy, you will lose your way and definitely get consumed by the sharks. So, you must develop a good strategy and follow it strictly.

Creating a good strategy involves research, extraction of ideas, and formulating a preliminary strategy. After that, you have to back-test the strategy and then front-test it in real-time using a demo account to be sure that it has an edge in the market. Without a verifiable edge, it would be difficult for you to implement your trading strategy when hard-earned money is on the line, which will leave you at the mercy of your greed.

4. Have a clear entry criteria

Your entry criteria have to be very clear, such that a 12-year-old can execute it. There should be no room for guesswork, else your greed will push you to start entering the market at random while thinking that you are following your strategy. And this can spell doom for your trading account.

Thus, your entry criteria must be very clear, and if possible, you should have a checklist of the criteria with you whenever you want to place a trade. That way, you will be sure that your trade setup is present and completely formed before you place a trade. Moreover, you are more likely to be consistent in implementing your strategy and not abandon it in search of a new one.

5. Make use of hard stop loss orders

When you enter a trade, you should put a hard stop loss order that would get you out of the market if the trade turns a bad one. By using a stop loss order, you ensure that you keep your potential loss at the intended size. But you must be disciplined enough no to widen it if the price is about to hit it. Once you have set your stop loss, don’t tamper with it.

Some may think of using a mental stop loss whereby they note the level they want to exit the market and manually close their trades when the price gets there. But this builds a fertile ground for greed to manifest, as the trader may find it painful to exit with a loss and, instead, may believe that the price would later turn back in their favor.

6. Place take profit orders in all your trades

It is necessary to put a take profit order whenever you place a trade in the market. During your analysis, you determine a potential reversal level where the price is likely to reverse and plan to exit your trade there. When you know where you are getting out and have a limit order waiting there, you won’t give in to greed trying to milk more profit and end up hurting yourself if the price reverses.

‘Let your profit run’ is for the experienced traders who have mastered some good strategies for trailing profit. As a beginner trader, it is easier for you to estimate a profit target and place your take profit order there. It helps you put your greed in check. Don’t lust after the extra pips you would have made if the price continues to move — once you had a good reward/risk ratio, be happy with your profit.

7. Practice set and forget

The simpler you make your trading, the better. So, always look for ways to make things easy and straightforward. Rather than micromanaging your trades, where you give your greed a chance to manipulate you, why not practice set and forget? What this means is that you set your stop loss and take profit orders when you enter a trade and don’t intervene in the trade, no matter what happens, until you get an outcome — which can either be a win if the price hit your take profit order or a loss if the price hit your stop loss order.

It is the best approach for you if you are a new trader as it will make it easier to control your greed. But make sure that your take profit is at least twice your stop loss order.

8. Set an automated trailing stop

If you are already experienced in trading and know the various ways you can trail your profit, feel free to use any of them, provided it is part of your trading plan. But make it systematic. Determine the method of trailing stop you want to use — specified number of pips, percentage of profit, multiples of ATR value, moving average, or preceding price swing.

Whichever method you choose, don’t do manual trailing; you won’t be able to keep up, and your greed may interfere. Let your trailing be automated by making use of an expert adviser that is coded to trail the price with your preferred method. You can find many of them on the MQL4 Community if you trade with the MT4 or MT5 platform.

9. Don’t chase the trade

Obviously, chasing a trade that you have missed is a sign of greed. When you chase a trade, you mess up with your stop loss level. You may have to risk more pips to place your stop loss at the appropriate level or place it in a not-so-safe place. The best thing is to ignore the temptation, and one of the best ways to do that is to tick the checklist of your trade entry criteria before you place a trade.

Another thing you can do is to consider the reward/risk ratio if you go ahead and place the trade. The expected profit target remains the same, but the entry level has changed and so does the size of the stop loss if you’re to keep it at the normal level. So, your potential profit is now smaller compared with the potential risk.

10. Take a break

Greed is likely to set in when you are in the market for a long time, as it normally manifests as overtrading. So, it makes sense to take a break from trading after a while and go to do something else that can calm your emotions. It could be taking a walk or talking with friends.

Taking a break from the market is especially important if you have a streak of wins or losses because you are more likely to be overwhelmed by your emotions in that situation. If you are in a winning streak, you may want to overtrade because you feel you can make more money, and if you are in a losing streak, you may still overtrade in a bid to recover your losses or want to take revenge on the market.

Even if you are a swing trader who doesn’t see trading opportunities every day, it pays to stay away from the market for a while.

11. Don’t overuse leverage

Ultimately, the hallmark of greed in trading is using excessive leverage in a bid to make the most money in the shortest possible time. And you know what, it is a killer. With a little adverse price movement, your trading account will blow. While a little bit of leverage could be great in the hands of an experienced trader, beginner traders should avoid leverage entirely.

The easiest way to know that you are not using leverage is to trade a lot size that corresponds to your account size and risk no more than 1% of your account size in a trade. For example, if your account size is $1,000, you trade a micro lot size (0.01), and risking 1% of your account ($10) means that you must risk more than 100 pips in your stop loss before your trade becomes leveraged since 0.01 lot is equivalent to 1 cent. For a $10,000 account, trade mini lot size (0.1), and if you have a $100,000 account, trade a standard lot.

12. Have a long-term goal with short-term objectives

Finally, have a long-term outlook. Trading is a journey with many ups and downs, so prepare your mind for it. Remove that get-rich-quick mentality from your mind, and set long term goals. In the short term though, your objectives should be to execute your strategies well.