Friday, July 11, 2008

Overcoming Greed

No, I'm not here to tell you that I've overcome greed.

However, I can tell you how damaging it is to let greed get involved in your decision making process. Generally, it works like this:
  • You see a pair moving in a direction, let's say up, and you want aboard before the big move.

  • You grab a piece of this pair right then, so you won't be left behind.

  • You look at your charts and see that you've bought at the top of a bollinger band in one timeframe or another.

  • You spend untold hours having the price come close to your original purchase price but of course it never gets above your purchase price to any degree.

  • After biting your nails for hours you finally dump the pair as soon as you can get a few measly pips out of it.
Sound familiar? Here's me being an idiot...

Bad entry point

The really annoying thing that occurs to you, again and again, in the above scenario, is that if you had waited until the price fell a dozen pips or more you'd have been able to make five or six reasonably profitable trades instead of sitting on a turkey.

While bollinger bands are not a panacea they can be a great tool. If you buy close to a short-term low on your chart you are much more likely to be able to sit on your trade and wait for a good move. This is because your trade may never sink far enough under water to cause you stress.

Yes, yes, I know. We should always have stops on when we make our purchases. However, that doesn't mean that we won't want to babysit our trades so that we can be there to grab another trade if the opportunity strikes.

Once again, an opportunity for you to learn from my mistakes...

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