FEAR AND GREED the two emotions of the stock market

FEAR AND GREED the two emotions of the stock market

Maybe you have seen the ads for the trading systems that were going to revolutionize market trading as we know it, or maybe you didn't catch them before they disapeared. I have a theory about that.

The two emotions of the stock market 
In the mid to late ‘90’s and the beginning of 2000 there was such a huge build up of companies designed to help you get fantastic returns in the market, that it was scary. I can remember just driving around the San Francisco Bay Area and seeing SUV after SUV with some kind of garish ad plastered over it.  The ads were all about their wonderful, yet undiscovered trading methods that were sure to bring double and triple digit gains to their practitioners. The ads were everywhere and usually on a very large pick up or a large SUV. The internet was also littered with these companies with the same outlandish promises.
They all seem to operate on the same premise, that all you have to do is use their trial software and fifty thousand fake dollars and you too could become an overnight market guru. The ads plastered the smiling faces of the few who perhaps did enjoy triple digit gains, but you never see the masses that had single digit gains to double digit losses.
So one wonders, do people really make that much day trading with these unscrupulous companies? When you are in the trial phase using the fake bucks a lot of people make a killing, but for some reason, when real money comes into play, why do the losses start racking up? FEAR AND GREED baby, FEAR AND GREED!
Many moons ago, in another life, I was an Emergency Medical Technician as well as a firefighter. We had a standard procedure that firefighters would not respond, or be diverted if it was discovered a friend or family member was involved in an accident we were responding to. And that did happen a couple times. The thinking was that a person was too emotionally involved to think clearly and analytically. Patient care suffered.
The stock market is propelled forward by fear and greed. When a company pre releases poor earnings the initial market reaction was a lot of volatility due to fear of loss. If the stock dipped enough, greed could be counted on to bring in buyers who saw a fire sale on that particular stock.
When the Federal Reserve announced its decision on short term interest rates the knee jerk reaction, up or down is fear and greed in action. A few minutes later, after investors settle down then we begin to see a clear picture of where the market is actually going. When you are doing your practice trading with someone’s wonderful software there is no fear because there are no consequences, so the investor can take a step back and analyze what is really going on in the market, and then make a good rationale decision.
Just like the Emergency Medical Tech. who is too close, who has an emotional stake in the outcome of the accident, he or she cannot make the best decisions and in a timely manner. I can’t tell you how many stories I heard about these wonderful trading systems that didn’t work worth a darn.   It seems the only people making money here are the guys selling the ‘pipe dreams.’
All these systems depend upon investor greed and the need for instant gratification. You won’t see a single trading system that espouses a buy and hold philosophy. I don’t know how all these guys got it right, and where Warren Buffet got it wrong, but if I see anyone I will ask them. Alas I can’t ask anyone because for some strange reason, they have all dried up and gone the way of the dinosaur.
Forget gambling. Good luck and happy INVESTING.

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  • artv

    November 08, 2009

    I have a friend who quit his regular job 3 years ago to become a day trader of stock market index futures. His lifestyle hasn't changed, so he hasn't hit pay dirt, but he's still trading with some success. It's hard to know how much he's really earning or losing. Is there any chance that a small percentage of people could be able to be fairly successful over the long-term with some forms of day trading?

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