The Two Forces That Control Every Trade
Warren Buffett famously said, "Be fearful when others are greedy, and greedy when others are fearful." This advice captures the essence of the two most powerful emotions in trading: fear and greed.
These twin emotions drive market cycles, create bubbles and crashes, and are responsible for more trading losses than any technical error. Understanding how fear and greed manifest in your trading—and learning to control them—is the difference between consistent profitability and constant frustration.
The Emotional Cycle: Markets move in cycles of fear and greed. Amateur traders get caught in the cycle. Professional traders recognize it and trade against it.
Understanding Fear in Trading
The Five Types of Trading Fear
1. Fear of Loss
This is the most common fear in trading:
- Symptom: You exit winning trades too early to "lock in profits"
- Result: You cap your winners at 1R while letting losers run to -2R or more
- Example: Stock moves from $50 to $52 (your target is $55), you exit at $52 because you're afraid it will reverse
- Reality: Small wins and large losses = guaranteed account destruction
2. Fear of Missing Out (FOMO)
FOMO causes you to chase price:
- Stock breaks out and runs 5% without you
- You enter at the top, convinced it will keep going
- Price immediately reverses, hitting your stop
- You bought high and sold low—the opposite of the plan
3. Fear of Being Wrong
This prevents you from taking trades:
- You see a perfect setup that meets all your criteria
- Instead of entering, you hesitate: "What if I'm wrong?"
- Trade goes without you and hits the target perfectly
- You repeat this pattern and miss all the best setups
4. Fear After a Loss
One loss makes you doubt your entire system:
- You take a normal -1R loss (part of trading)
- Next valid setup appears
- You skip it because you're "gun-shy" from the last loss
- That trade would have been a winner
5. Fear of Pulling the Trigger
Analysis paralysis at its worst:
- You plan the trade perfectly: entry, stop, target
- When it's time to click "Buy," you freeze
- You second-guess everything and talk yourself out of it
- Price runs without you
Understanding Greed in Trading
How Greed Destroys Accounts
1. Moving Stop Losses
Greed manifests as giving trades "more room":
| Scenario |
Disciplined Trader |
Greedy Trader |
| Entry |
$100, stop at $98 |
$100, stop at $98 |
| Price drops to $98.50 |
Sticks to plan |
"Let me move stop to $97" |
| Price drops to $97.50 |
Already out (-$2 loss) |
"Maybe $96..." |
| Price drops to $93 |
Looking for next setup |
Stops out at $96 (-$4 loss) |
Result: Greed turned a -2% loss into a -4% loss. Do this 3-4 times and your account is destroyed.
2. Oversized Positions
Greed tells you to risk more on "sure things":
- Normal risk: 1% per trade ($1,000 on $100k account)
- Greed whispers: "This setup is perfect, risk 5%"
- Trade loses: -$5,000 (5 normal losses in one trade)
- Mental damage: Now you need 5 consecutive wins just to break even
3. Not Taking Profits
You're up 3R and target is hit, but greed says "hold for more":
- Profit target: $55 (you're up +$5 per share, +3R)
- Greed: "It's still going, I'll hold for $60"
- Price reverses to $52
- You exit at breakeven instead of +3R
- What was a great trade becomes a waste of time and emotional energy
4. Revenge Trading
Greed disguised as "getting back" losses:
- You lose -$500 on a trade
- Greed says: "Double your position size and make it back in one trade"
- You risk $1,000 (2x normal) on next trade
- It also loses
- You're now down -$1,500 total and emotionally destroyed
The Fear and Greed Cycle
How Markets Move Through Emotions
Every market cycle follows the same emotional pattern:
| Phase |
Emotion |
Amateur Action |
Pro Action |
| Bottom |
Fear/Despair |
Sells at the bottom |
Accumulates |
| Early Uptrend |
Hope |
Waits for confirmation |
Already positioned |
| Mid Uptrend |
Optimism |
Starts buying |
Holding winners |
| Late Uptrend |
Euphoria |
FOMO buying at top |
Taking profits |
| Top |
Greed |
All in, maximum risk |
Out with profits |
| Early Downtrend |
Denial |
"It's just a dip" |
Looking to short |
| Mid Downtrend |
Panic |
Holding losing positions |
Profiting from shorts |
| Late Downtrend |
Capitulation |
Sells everything |
Preparing to buy |
The Pattern: Amateurs buy when they feel greedy (at tops) and sell when they feel fearful (at bottoms). Professionals do the opposite—they buy fear and sell greed.
Practical Techniques to Overcome Fear
1. Pre-Define Every Trade
Remove fear by making decisions before you enter:
- Entry price: $100.50 (specific, not "around $100")
- Stop loss: $98.00 (firm, non-negotiable)
- Target: $106.00 (where you will exit)
- Position size: 400 shares (calculated for 1% risk)
When everything is planned, there's nothing to fear—you simply execute.
2. Risk Small Enough to Not Care
The #1 cure for fear: risk an amount that doesn't emotionally affect you
- If losing $1,000 keeps you up at night, risk $200 instead
- If you're checking your P&L every 2 minutes, you're risking too much
- Start at 0.5% risk per trade, increase only when consistently profitable
3. The "Pre-Acceptance" Technique
Before entering any trade, say out loud: "I accept that this trade might be a loser, and that's okay."
- Mentally accepting the loss before it happens removes the fear
- You've already processed the worst-case scenario
- Now you can execute without emotional interference
4. Journal Your Fears
Track what you were afraid of and what actually happened:
| Fear |
What Happened |
Lesson |
| Afraid to enter at $50 |
Ran to $55 without me |
Fear cost me 3R profit |
| Exited at $52 (afraid of reversal) |
Went to $55 target |
Fear turned 3R into 1R |
| Skipped trade after loss |
That trade was +2R winner |
Fear compounds losses |
Over time, you'll see that fear causes more damage than the losses you're afraid of.
Practical Techniques to Overcome Greed
1. Never Move a Stop Loss (Against You)
Create an iron-clad rule:
- Once stop is set, it can only move in your favor (trailing stop)
- NEVER move a stop to give trade "more room"
- If you didn't want the stop at $98, you shouldn't have entered the trade
- Moving stops is greed disguised as "flexibility"
2. Take Partial Profits
Satisfy greed while protecting profits:
- At 2R: Take 50% off, move stop to breakeven
- At 3R: Take another 25% off
- At 4R+: Let final 25% run with trailing stop
This gives you guaranteed profit while still capturing big moves.
3. Set Position Size Before Entry
Never size positions based on greed:
- Calculate risk: 1% of account per trade
- Calculate position size based on stop distance
- Enter the calculated size—no more, no less
- Never think: "This is such a good setup, let me 2x my size"
4. The "Screenshot Rule"
When you're up big and greed says "hold for more":
- Take a screenshot of your unrealized profit
- Ask yourself: "Would I be happy if this screenshot was my final P&L?"
- If yes, take the profit
- Greed wants more. Discipline takes what's there.
Common Mistakes Driven by Fear and Greed
Mistake 1: Cutting Winners, Letting Losers Run
Cause: Fear of losing profits, greed hoping losers will recover
Solution: Pre-set targets for both wins and losses. Execute mechanically.
Mistake 2: Chasing Price
Cause: FOMO (fear-based greed)
Solution: If you miss a setup, wait for the next one. There's always another trade.
Mistake 3: Increasing Position Size After Wins
Cause: Greed and overconfidence
Solution: Never change risk per trade based on recent results. Stay consistent.
Mistake 4: Freezing on Valid Setups
Cause: Fear of being wrong
Solution: If setup meets criteria, take it. Trust your system over your emotions.
Building an Emotion-Proof Trading System
The "If-Then" Framework
Remove emotion by creating rules for every scenario:
- If price hits my stop → Then I exit immediately (no hoping)
- If price hits my target → Then I take profit (no greed)
- If I lose a trade → Then I take 10-minute break (no revenge)
- If I feel FOMO → Then I skip the trade (no chasing)
- If I'm up 2R → Then I take 50% off (lock in profit)
The Mechanical Approach
Trade like a robot:
- Define exact entry criteria (setup must match 100%)
- Calculate position size before entry
- Set stop and target simultaneously with entry order
- Don't watch the trade tick by tick
- Let stop or target get hit automatically
- Review trade only after it's closed
The 21-Day Emotion Control Challenge
Week 1: Awareness
- Before every trade, write down: "I feel ___ (fear/greed/neutral)"
- After every trade, note if emotion affected your decision
- Goal: Simply become aware of your emotional patterns
Week 2: Rules
- Create non-negotiable rules: Never move stops, always take profit at target
- Print rules and keep them visible while trading
- Goal: Follow rules even when emotions scream otherwise
Week 3: Mastery
- Execute trades mechanically without emotional input
- Track how many trades you took while feeling neutral vs. emotional
- Goal: Trade only when emotionally neutral, or follow rules despite emotions
Key Takeaways
- Fear and greed are the two most destructive emotions in trading
- Fear makes you exit winners early and skip valid setups
- Greed makes you move stops, overtrade, and hold losers too long
- Markets cycle through fear (bottoms) and greed (tops)
- Amateurs buy greed and sell fear—professionals do the opposite
- Pre-define every trade to remove fear-based hesitation
- Risk small enough that losses don't emotionally affect you
- Never move a stop loss to give trades "more room"
- Take partial profits to satisfy greed while protecting gains
- Build an "if-then" system that removes emotional decision-making
- Journal your emotions to identify and fix patterns over time
Final Truth: You cannot eliminate fear and greed, but you can build systems that make them irrelevant. Trade the plan, not the emotion.