Fear and greed: Two sides of a coin

Both can lead to losses even if the reasons are different.

FEAR: There is fear usually when there are down trending markets and traders can be carried away by despair. The impulse response in this case is to close all positions quickly to avoid further losses. The point here is that these movements are often market peaks that eventually reverse. The trader that acts calmly and beforehand verifies indicators and trends is more likely to take advantage of changes in the market and avoid losses. That’s why the best in these cases is to set a “stop loss” and respect it, because in “difficult” times you will not be thinking with total objectivity and reasoning.

GREED: This is contrary to the case of fear. Greed occurs when the gains are increased and the operator fails to distinguish a time when to get out of a position, always waiting to “get something closer to the market.” Of course this also has its peak before starting to fall, which in the best case scenario achieves minor gains and at worst … could even lose money.

To avoid falling prey to these emotions, the important thing here is to understand that both parameters, Stop Loss and Limit to be set before each transaction based on the fundamental and technical analysis of it, and then they must be RESPECTED.

Remember:
Stop Loss: how much am I willing to lose.

Limit: How much am I willing to earn.