Trading Psychology  |  JUN 2004

Trader Equilibrium by Ruth Barrons Roosevelt

V. 22:6 (78-79): Trader Equilibrium by Ruth Barrons Roosevelt To handle the volatility in the markets, you must maintain balance within yourself. Like life itself, trading is about balance. The markets are in constant motion, and in order to handle the volatile forces appropriately, you need to have equilibrium within yourself. This balance will enable you to be on an even keel as you handle any situation. With equilibrium, your emotional inclinations are equalized and stabilized over time. FEAR AND GREED As a trader, it is important for you to balance your fear with your greed, and vice versa. Fear and greed are so prevalent in trading that they have become the default clichés used to simplify and represent the entire complex trading experience. Fear must be balanced. If you have too much fear you can’t trade, at least not with clarity and consistency. On the other hand, if you have too little fear, you become reckless. In a similar way, greed also needs to be balanced. If you have too much greed you’re likely to grossly overtrade. You may ignore warning signals in your indicators and run the risk of blowing out in a random event. But with no degree of greed at all, you may not even bother to trade, or trade in sufficient size to make a difference. Fear and greed should act as counterbalances. However, most of the time one of them outweighs the other, and this puts a trader off-center. Even so, fear and greed are not opposites. The opposite of fear is overconfidence, which can be even more dangerous than greed because you can easily get sloppy or reckless. The opposite of greed is either contentment or self-denial. If you do not think you deserve profits, you won’t get them, and if you are content, there is no reason to put your capital at risk — and you stagnate.

by Ruth Barrons Roosevelt