Destructive Emotions

Greed Greedy investors tend to be over- condent and want to make as much money as they can in a short period of time. They want big prots and they want them now. The desire to make money, however, is in many instances unrealistic. If, for example, I gave you a small vegetable patch and told you to feed your family from it, you would probably think about it logically and deduce that you had insufcient resources at your disposal to achieve the aim. Contrast this with the amount of people I speak to who want to invest $5,000 in a commodity account, and earn a living from it and retire from their job. The chance of achieving their desire is almost nil, but over condence and desire overcome logic and objective thinking.

Fear All people fear losing money, worrisome news in relation to their investments and savings stimulates more fear. Fear then spreads; a fearful man’s psychology is contagious. If people around us are fearful, so are we. If we have suffered fear in the past, we retain all our past experiences in our subconscious mind. Finally we have the fear of losing. Also, if we see other people making money, we want to be in on the action as well.

Hope This is dened as the expectation of something desired. However, investment decision making should not be based purely on desire, but on a rational assessment of the facts. When a trader loses he hopes that things will get better when he really should be being objective.

If you read the great traders, you will constantly see them refer to Hope and Fear and their destructive power.

“Hope and fear: I have written about this often in my books, and I feel I cannot repeat it too often. The average man or woman buys commodities because they hope they will go up or because somebody advises them they will go up. This is the most dangerous thing to do, never trade on hope. Hope wrecks more people than anything else. Face the facts and when you trade, trade on facts, eliminating hope.”

“Fear causes many losses. People sell out because they fear commodities are going lower, but they often wait until the decline has run its course and sell near the bottom … never make a trade on fear.”
W.D. Gann

“The successful trader has to ght … two deep-seated instincts, instead of hoping he must fear, instead of fearing he must hope. He must fear that his loss may develop into a much bigger loss, and hope that his prot may become a big prot. It is absolutely wrong to gamble in stocks the way the average man does.”

“The speculator’s chief enemies are always boring from within. It is inseparable from human nature to hope and to fear.”
Jesse Livermore

After greed the average speculator, to achieve his desire, falls victim to both hope and fear and ultimately loses his money