E-Mini Trading: Understanding Greed and Fear

There are a variety of styles and techniques to trade the e-mini contracts, some are very good and others may be a bit lacking. The one topic that I consistently see omitted from most trading courses is an emphasis on the psychological aspects of e-mini trading. I am not talking about any deep psychoanalysis here, but a perfunctory analysis of your own reaction to adverse and euphoric situations is essential.



Anyone who has observed the machinations on Wall Street over the past five years can certainly understand the level of greed this group of individuals possesses. I will spare the reader some of the atrocities committed by the major investment banking concerns, but their desire to earn astronomical profits in the mortgage business, regardless of the outcome on the economy, puts them in a class of greed that is unparalleled.



On the other end of the spectrum sits the small e-mini trader. The small trader is under much more pressure in his or her trading than the larger, well capitalized trader. The small e-mini trader does not have the luxury of unlimited time to let his or her trade develop. That being said, the small trader is always "on the clock" so to speak, when he or she enters a trade. Since most small traders use reasonably tight stop-loss targets, an adverse move opposite the direction of their intended trade creates fear. This fear often drives small e-mini traders prematurely out of their position in hopes of saving their precious futures account balance. And with good reason; small traders are not in a position to incur large losses on a regular basis. Further, several large losses in succession creates an atmosphere of fear-based trading that is nearly crippling for most traders. It is my opinion that most small trader’s trade far too narrow stops and frequently they exit out of trades prematurely or get stopped out before the trade can develop.



On the other hand, there is a trader who has put together a run of three or four monster trades and feels invincible. This is euphoria, and I have watched traders lose large amounts of money after they have made three or four outstanding trades. Euphoria is a treacherous emotion because there is a general feeling of well-being, and an e-mini trader can come to believe that any trade he she chooses to enter is going to be a winner, regardless of the likelihood of the trade being successful. Many traders in a euphoric state and the squandering their gains unnecessarily.



Fear and greed are the driving emotions in the small e-mini trader’s psychological makeup. To be a successful trader one must conquer these two emotions and not let them control you’re trading. Most successful traders have a standard money management technique, a standard trading technique and regardless of whether they have lost money or made money they doggedly stick with their technique. As a trader, I can tell you that I have learned to manage fear and greed to a high degree, but it is a struggle. I still experience these emotions in the descriptions above; the difference between consistent traders is not panicking when you feel the emotion of fear, and not thinking you can walk on water when you feel the emotion of euphoria.



Next time you are trading, give some consideration to your emotional state and of the potential fear that you experience if a trade moves against your position, and the euphoria of stringing together for five excellent trades.



Then give fear and greed some consideration and stick with your money management and trading technique; learn to remove fear and greed from your trading actions. I am not inferring that we all don't experience fear and greed; some of us have learned not to act on those emotions though. Learn to overcome fear and greed and you will see a marked improvement in your trading consistency.



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