The Core

The ultimate success or failure of your trading business will come down to one thing. Can you reverse the fear and greed psychology that is inherent in all of us? If you cannot you will not succeed as a trader.

This brain activity comes from our core fight or flight instincts that have been given or evolved, depending on your religion, to all man kind. These instincts have, and continue to serve us well in all aspects of life except trading and investing.

When confronted with a decision in the trading day our instincts let us down as they are dead wrong. If we see profit in front of us our flight/fear instinct says take the money and run. If we see a loss in front of us our fight/greed instinct says hang on and tough it out, we will be vindicated.

Again, both decisions are dead wrong.

This is why the simplest rule of trading is the most difficult; cut your losers quickly and let your profits run. It sounds so simple anyone should be able to do it. Statistics tell us that anywhere from 85% - 95% of people cannot do it.

This is the main reason why some "gurus" state that sim trading is useless, because the fear greed complex can only be tested with real money at stake. This is true, however we believe sim trading does provide the right path to test trading systems. Just because you can sim trade a system profitably does not mean you can duplicate the results with real money.

The key to reversing our fear greed complex starts with recognizing it first and then using our conscious mind to try and override our subconscious mind. Easier to say then do.

One way to help this is to provide the conscious mind with facts; statistics that you have done that show the results of cutting your losers quickly and letting your profits run.

The profit running side is the hardest for most traders to conquer. We have found that a trial database showing the results of different technical profit exits is a great method to provide concrete facts that prove the merits of "letting your winners run".

It could be that we can't completely reverse our fear greed complex, perhaps just understanding it will give the trader enough of an edge to find their way to the winning side of the game.