When Is Greed Good In Forex Trading?
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If you’ve ever seen the 1987 film Wall Street, then you are likely familiar with the infamous character Gordon Gekko and his “greed is good” speech.
And, of course, as we all know, Wall Street doesn’t end well for Gekko. And, as we are often told throughout life; don’t be greedy!
But why exactly is greed bad for us as forex traders? And does it at least serve us some purpose in particular moments?
The short answer is no, it really doesn’t help forex traders. More often than not, it serves as a hindrance that can severely damage your chances of success.
In this article, we’re going to look at what role greed plays in forex trading and if it ever serves any useful purpose.
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Why is greed bad for forex traders?
Since we started this article, with a quote, why not keep going? Another very popular Wall Street phrase: “Bulls make money, bears make money, pigs get slaughtered”.
And what does that mean?
But pigs? AKA, the greedy traders? They don’t make money and they rarely survive. They can end up losing it all.
For most forex traders, the reason why greed doesn’t work is very simple; they’re putting far too much at risk for more.
And to make it worse, most of the time these greedy traders don’t need the money.
It is likely that greed won’t kick in immediately for many new forex traders. Usually, it starts to appear when you have a bit of experience.
Or you may be driven by regret when you miss out on an opportunity and think that next time you want to make more.
Or maybe as you’re improving as a forex trader, but wrongly assume that because you’ve gotten better you should start risking more.
How greed works in forex trading
Greedy people might not recognise their own greed. To them, their actions are completely normal, logical even. They wouldn’t have it any other way.
There are many different ways greed can infect your forex trading. Some might say that there is no place for greed in forex trading, that it has no benefit at all.
Greedy traders don’t set limits
Before you place a forex trade, you should know exactly what you want to get out of it. When to get in and when to get out.
Many greedy forex traders fail to do this. Focusing solely on increasing profits, which puts what they already have at risk.
Greedy traders don’t recognise their achievements. They don’t know when to pat themselves on the back and say well done; enough is enough, I’ll continue tomorrow.
They’re just obsessed with constant growth at any cost. It doesn’t matter if they make 5 pips or 100 pips in a trade, it’s all the same.
However, there are some traders who are wise enough to set limits, but they simply can’t stick to them and the greed takes control.
Most often, greedy traders see the market continue to rise beyond their target and want to ride it till it finishes, to make the absolute most of it.
But forex trading is not the same as gambling! You need a measured approach to be a successful forex trader.
Greedy traders trade too much
Some greedy traders can’t help themselves. They get excited over every perceived opportunity that opens up in front of them.
They’re constantly thinking about what they might be missing. But this is not the right way to trade. Such an itch needs to be treated and ideally removed from your forex trading.
Despite what some might think, you don’t get rich trading more. You get rich by being really picky over what you decide to trade.
You need to be patient and over time you will make your fortune.
Trading too frequently is often referred to as ‘overtrading’ and this is one of the primary ways novice forex traders lose everything.
Greedy traders risk far too much
Trading in larger amounts doesn’t always bring back more profits! Unless you are really, really certain about what you are doing, you are just risking a lot of what you have for no reason.
Even if you don’t lose the trade, you might make back pennies in comparison to what you risked. To many professional traders, you may as well count that as a loss, not a win.
Another variation of this problem is staying in a trade too long. Doing this can make a winning trade a losing trade as you ignore your target and the market turns against you.
Such an approach to forex trading can lead to disappointment.
When you’re trading and the market keeps going up over what you planned and you stay in the trade, you can get excited.
Then, when the market slides back down to normal levels, you can feel disappointed when you think about what you could have had.
This can lead to negative feelings about trading and even result in you giving up the profession.
Inexperienced traders who use leverage also fall into this category as well. Some end up with ‘King Kong syndrome’, risking humongous amounts and depleting their trading account very quickly.
Greedy traders can risk too little
Despite the above, there are also some greedy traders who do the exact opposite! Instead of trading too much, they’re too scared to part ways with their money.
They worry far too much about losing what they have. If you have this mindset, then forex trading might not be for you.
Without risk, you will never make a profit in forex trading, unfortunately. You need money to make money.
There are, of course, greedy traders that only trade in small amounts. They’re scared of parting with what they have.
But if you keep your risk too low, then the profits might be too small and not reap the rewards you are looking for. Again, leaving you disappointed.
For such traders, fear and greed overlap.
But… Can greed ever be good?
There are a lot of professional forex traders you will straight up just say ‘no’ to that question.
They have been around long enough to see greed end people’s forex trading career or perhaps they have seen how greed has affected their own trades.
That said, greed may have a place in some situations.
There are some traders who believe in ‘riding the wave’ when the market is doing exceedingly well.
Although we mentioned above can be seen as an act of greed, it’s highly common amongst forex traders, and sometimes can be highly rewarding - if you know when to get out!
One way to do this without letting your greed get the best of you is to use a trailing stop-loss, which can prevent you from losing out when the price starts to sink back down.
Isn’t greed natural?
There’s nothing wrong in striving for more. Just don’t let that get that define your forex trading strategy to heavily.
Every forex trader can probably be said to be a little greedy. After all, we’re in it for the money.
We live in a capitalist society, and capitalism is built on greed. Capitalist economies need to constantly keep growing or they risk falling apart.
But too much greed can be damaging and can risk collapsing an economy.
Some psychologists believe that greed might be natural and is a survival mechanism. In the past, it encouraged us to gain supplies, such as food, to ensure that we could survive.
And looking back at Gordon Gekko’s speak from Wall Street, he does make some valid points about the importance of greed as a driving force of human development.
“The point is, ladies and gentleman, that greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge has marked the upward surge of mankind”.
However, in today’s world, and in particular, for you as a forex trader, greed is an unnecessary survival mechanism as you likely have enough to get by in life.
It is in effect a leftover trait from hunter-gatherer societies when greed really was good and helped us go on living.
And let us not forget, greed is a sin in most religions for a reason; it is harmful to individuals and the people around them.
Overcoming greed in forex trading
You might not be able to rid yourself of greed completely. Not many of us ever will. But you can at least create measures to control your greed when trading forex.
Discipline is the only way out of greed. Only by actively confronting your greed and taking steps to spot it will you be able to start curbing it.
Perhaps the best way to start doing this is by keeping a trading journal where you log all your trades and take note of your motivation behind your trades.
By analysing your past trades, you can set yourself realistic profit goals based on your capabilities and the market, not your inner desires.
Further to that, having a good understanding of psychology can be a big help in forex trading.
It will help you recognise what leads us into making certain trades and actions, such as those motivated by greed.
If you remember anything from this article, make it these key points.
- Greed is not good! Don’t let anyone fool you into thinking otherwise!
- Not setting limits and overtrading can be seen as symptoms of greed. Forex traders need to be meticulous and precise in their trading strategy.
- Some greedy traders risk far too much or risk far too little. They either place too much of their money on a trade or are too scared to risk what they have.
- Greed may be a part of human nature, but in today’s world, it’s definitely not helpful. Early human societies benefited from greed, today it is seen as a destructive force.
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