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Monday, October 8, 2007

Greed and Fear

Fear and Greed.. The two most important emotions on the trading floor. When the greed is more than the fear, the prices go up. People are buying more and more expecting the prices to go even higher. The self-fulfiling expectations... For some period of time they work. As long as they are sufficiant number of people /and the MONEY/ to support them. When the stocks are bought, the money spent.. people start to look around. When will it start falling??.. When shall we run?..

At that time the smart one take their profits. They might miss a slight future explosion but protect their capital! The smart investor /or trader if you prefer/ knows that the main point is to NOT LOSE your capital. Your money. When you do the things right way, the profits will come. Protecting your funds means to sell when you suspect someting and to take your profit. After that, if your suspections shows to be wrong you might get on the train once again. But keep your motives clean :) Do not buy just because you have sold your shares before. Consider the deal as a separate deal. Investigate it the way you like and take it because you want it and you know what you are doing. If you are uncertain in some way, it's better to let it go...

So we fear... and we do nothing. The normal reaction is to run. But here comes the hope. The hope that the prices will go in "our" direction at least slightly more. The point is that this same hope is not only ours. Hundreds or thousands of other people hope the same thing. Yet lesser and lesser of them support their hope with money... So it comes the time when more people start to give up their hopes. The problems is that you don't know when their hopefull spirit will be broken and they start to sell. In the most cases you are left behind... That's why it's not a smart move to be long when you suspect you should be short.

One of the hardest things is to do what you think you should do. Sometimes traders /investors, players, etc./ are like the most unrational creatures. Stunned by their hopes and fears they think one thing and do just the opposite. Strange place is the stock exchange....

Look at the graphics, use your indicators, compare the volumes, the prices... Make your dessicion and bet your money on it! :)

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