The most successful investor on the planet Warren Buffett once said: “Be afraid when others are greedy and greedy when others are afraid”. So do you really understand what greed and fear when trading in IQ Option are?
Fear and greed are often seen as the main emotions driving financial markets. This is clearly an over-simplification. However, fear and greed play an important role in trading psychology. Traders need to understand when to exert or when to overpower these emotions. That action proves the difference between a successful and a failed transaction.
Keep reading to learn more about fear and greed in trading. You will know the times when these emotions are most likely to arise and how to best control them.
- 1 The truth about fear and greed in IQ Option trading
- 2 How to manage greed and fear to become a successful trader
- 3 Summary
The truth about fear and greed in IQ Option trading
Fear and greed are manifested a lot during the trading process of a trader. They can do quite a bit of damage if not properly controlled. Fear usually comes before you open an order. On the other hand, greed will be revealed when traders increase volume before opening an order with the aim of making money as quickly as possible.
There are many causes for the explosion of these two emotions. However, when analyzed logically, greed and fear come from human innate instincts.
What is fear in trading?
We know that the fear associated with the «fight or flight» reflex exists within each of us. That is what we feel when we perceive a potential risk. Traders get scared when the price moves against what they expected in IQ Option trading. Because this is what makes them lose money.
Seeing price action move against expectations evokes your fear of losing money. Therefore, traders will tend to suffer longer and bigger losses. In fact, this is a mistake that both new and veteran traders make.
In another situation, the fear that might come to a trader is just before opening an order. Though the analysis may indicate a good entry point, they still can find another reason for the price to go against expectations. It scares them away from opening an order. As a result, they miss out on a great well-planned opportunity.
Fear often arises when the market crashes and traders stop trading. In this case, traders often decide not to enter the trade out of fear that the market will drop further. They believe that the price has fallen quite deeply and may bounce up at any time. Then, they let fear overwhelm their reason and miss out on a strong downtrend to help them earn huge profits.
What is greed in trading?
Greed is very different from fear but can easily make it difficult for traders if it is not well controlled, especially in IQ Option trading. It arises when a trader wants to maximize profits by increasing trading volume. They do so in the hope that the market will develop in a direction that benefits traders.
Greed can also arise when traders go through a series of losses and decide to «take revenge.” They hope that putting more money into a position will make them recover the losses more quickly. From a risk management point of view, this is very risky if the market continues to go against traders’ expectations. It causes their accounts to evaporate quickly in seconds.
Greed has appeared many times in the financial markets. One of them was during the dot-com bubble era. This is where individuals buy more and more internet stocks and inflate their value a lot before they crash. A more recent example is Bitcoin in 2017. Investors rush into cryptocurrencies thinking it can only go up in price before the Bitcoin bubble explodes.
How to manage greed and fear to become a successful trader
There are a few effective ways by which I’m going to help you manage your emotions. Make sure that fear and greed do not affect your trading decisions or your success in IQ Option.
Have a specific trading plan in IQ Option
Traders should have a IQ Option trading plan in place to avoid any negative emotions ruining your plans. When you let emotions mix in your trading, you will face a chain of losses.
Everything will be more perfect when you enter the market with a detailed plan. You will anticipate all the possible risks and profits when opening the order. Thereby, you also have a plan to handle each situation in a specific way. That will make it easier for you to achieve your target profit when entering the market.
Reduce IQ Option trading volume to limit fear and greed
One of the easiest ways to reduce your emotional impact is to reduce your trading volume. This is one of the mantras that you must learn by heart to become a successful trader.
If you trade with large volumes on a Demo account, You will never be so worried that you will lose sleep, as there are no real financial risks. However, traders will inevitably experience stress after seeing prices «dancing» on a large order in a Real account. The stress that leads to bad decisions can have a negative impact on your trading account. Therefore, it’s important to control your emotions.
Keep a record and keep track of the transaction log
Traders also need to take personal responsibility when trading. The best way to do this is to create a transaction log. Through recording a transaction log, you will evaluate the effectiveness of the current strategy and find ways to overcome the bad points. The important thing is that it helps you to get rid of things that are ineffective. It helps you never repeat mistakes that have been made before.
Control profit in transactions
A study conducted by reputable organizations found that emotions play a vital role in trading. As can be seen, the traders lose money despite having more winning trades than losing trades.
This is because the amount of loss in the chain of losses is more than the amount of profit in the winning chain. That is, traders lose more when the market goes against their expectations, compared to what they would get if the market moves in the direction traders expected.
Traders are always correct more than 50%, but losses persist. Because they always lose more money on losing streaks and make less money on winning streaks.
Through this article, you may have identified fear and greed in IQ Option trading. That is something that almost every trader knows but they can never achieve. All of this is due to a lack of self-indulgence that leads to poor trading results.
I have also shown you how to manage your emotions in the effective ways above. If you want to be profitable and become a successful trader, practice now. Don’t lose money on unworthy things. Wish you all success in the trading process.