Our biggest emotional enemy as a trader is greed.
Greed takes over when a trade is going well. We see profits climbing, and our emotions engage. The brain starts to release dopamine and seratonin, creating feelings of, enjoyment, self confidence and power. Our imagination begins to spontaneously create positive scenarios of how much more higher this trend will go, and what the profits could do to your bank account.
Its natural that we don't want these great feelings to stop. Yet we know that all market trends come to an end. And the higher and faster and more crazy the climb, the nastier and brutal the fall is likely to be when the reversal comes. Greed is the desire for the trend never to end. It's the irrational voice that tells us to hold on and just wait, just squeeze a little more out of this trade, just bag a few more percentage points and boasting rights.
Whenever we experience and emotion that we are not in control off, it's likely that an emotional addiction is setting in. Exiting a profitable trade while it is still climbing is probably so counterintuitive that you may have never even considered it before. But if we are to ever master the emotional game of trading, we practice self control again and again, while staring down the greed monster.
Can you exit a profitable trade while it's still climbing?
Exiting a profitable trade while it is still climbing is a great way to tame the greed monster. It also puts money in the bank rather than holding on and seeing those profits erode when your treasured stock opens below the last close and drops like a stone. You might have had a stop loss in place, but you would have made more money selling it the day before.
From the brain perspective, what are are trying to achieve is to exit trades without fixing attention on them. Fixed attention is where the brain automatically repeats something that happens in the past without you intending to do so. Attention fixes on things when the neuronal connections in the brain get reinforced so strongly during a particular life event, that when we need to move on and use that brain capacity for something else, we find we can't. Translated into trading, the feeling of not wanting to sell because you think the stock can go higher, is a form of fixed attention. The neuronal connection we have reinforced is greed - always wanting more and more, even when the stock chart or you intuition may be telling you it was a good trade already, and you should be cashing in.
Keeping your mind clean, trade after trade
Every trader has trades that stick in their mind, where they should have done something but didn't. Perhaps they held on as a stock soared 100% in two weeks, but then crashed 50% in a single day just while they were at the dentist and couldn't respond to the alert to sell... To keep our mind clean, after we exit, we need to wipe the emotional slate clean of anything that came up during that trade. That means being aware of exactly how we felt with the result, the execution, and the contribution of that trade to your goals for the month.
Taking profits in an uptrend is an expression of gratitude to the market, and refocusing your mind cleanly on the next opportunity. Thank you, you whisper to the Market. You have provided for me today. I am not being greedy. There is more profits waiting for me...
Cultivate an attitude of gratitute, exit your trades without fixing attention, and there will be another profit waiting for you.
