Don't be swayed by greed's vicious whisper
Greed is the most obvious emotion that can enter a trader's mind. Make sure you don't fall into these two ‘greed traps'. It could be costly…
Greed is a strange animal. It leads you to make rash decisions and abandon careful thought and consideration.
It pushes you to buy the overheated stock in the market just before the price crashes back to earth.
Two investment ‘greed traps’
Make sure you don’t fall into these greed spurred decisions when it comes to your investments. You will regret it, warns Gareth Stokes in Fear, Greed and the Stock Market
#1: The “buy for quick profit” syndrome
Greed will force you to buy a share on the expectation of a quick profit.
This really shows when you hear a rumour about a share that’s about to go up in price. Greed will immediately kick in, overriding every bit of investment common sense that you possess.
You enter the market without the slightest bit of fundamental analysis
to back your decision.
It’s not an easy problem to avoid. One’s hunger for money often gets in the way!
Any trade you make based on rumour is a greed induced trade. And remember, a greedy investor and his money soon part!
#2: The “hold regardless of cost” syndrome
Emotion is a funny thing – and one of the things greed won’t allow you to do is acknowledge or accept a loss.
Because you’ve entered the trade on the basis of greed (a desire for quick and swift profit) you become so convinced you’ll make money from the trade that you’re unable to exit the trade sensibly.
You hold on to the share all the way through your stop loss
, convinced you’ll make your money back over time.
Inevitably, you hold the share all the way to the bottom and end up with next to nothing.
Greed will rip away the safety net of your sensible stop loss strategy. Don’t let it!
There you have it. Two ways you can fall prey to greed.