Fear:<\/strong> If a trade is losing, you could feel a lot of pressure to close the position immediately. Instead of risking further losses, you decide it would be best to cut the trade short and limit the damage that’s already been done.<\/p>\n<\/li>\n Greed:<\/strong> Your trade is going very well. You’re making good money, but you really want to press your advantage. It seems like the market could keep running in your favor, so you double your existing position size.<\/p>\n<\/li>\n<\/ul>\n I’ve had both of those situations happen to me more times than I can count.<\/p>\n But in both examples, it’s not the decisions themselves that are dangerous. The danger is that the decisions were made because your emotions took control.<\/p>\n Fear and greed are two of the most powerful drivers of human behavior.<\/p>\n To even have a chance against those two emotions when trading, it’s crucial to have a detailed plan in place before you pull the trigger – a script that you can stick to as your trade develops.<\/p>\n You need to know what you’re aiming at, how many bullets you have in the magazine, and finally, whether you’ve managed to hit the target or not.<\/p>\n Now, let’s circle back to an essay I wrote on November 24<\/a> when we looked at natural gas.<\/p>\n In that essay, I wrote that prices had broken the neckline of a bearish<\/a> head and shoulders pattern. This meant that we could start positioning ourselves for a big trade in anticipation of natural gas breaking down hard.<\/p>\n The price action that has taken place since then is evidence of why I love trading commodities. It’s also a great example of a real trade where both fear and greed could’ve affected a trader’s mindset.<\/p>\n
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