Binary Options: Strategies for Directional and Volatility Trading

CHAPTER 13

Negative Emotions

Many traders discount the detriment of negative emotions on their trading. They greatly overestimate their emotional intelligence and thus assume that they will be able to follow any trading system without negative intervention due to negative emotions.

The real fact of the matter is that traders unnecessarily intervene even with fully automated trading robots, causing them to lose almost all the time. If people intervene even with automated trading robots due to negative emotions, you can only imagine just how much negative effect these emotions have when trading manually. In fact, there are extremely successful market-making operations set up simply to take advantage of people's negative emotions.

Almost any market maker will tell you that if you give any trader enough time, two catastrophic emotions will kick in and the statistics will catch up. These two catastrophic emotions are fear and greed.

It is very likely that if you've read at least one trading book in your life, you have heard about these two emotions. However, it is equally as likely that you are unaware of their practical relation to your trading. In order to have a true understanding of how these two emotions can negatively affect your trading, it is necessary to look into how each of them practically relates to your trading.

GREED AND FEAR

When you are trading any instrument, you have to ask yourself the following basic questions.

• When do I enter the trade?
• How much money do I put ...