TradingMarkets.com
Gordon Gecko's Greed is Good: Fact or Fiction For Today's Trader?
Monday March 31, 9:37 am ET
By TradingMarkets Research


Dave Goodboy is Vice President of Marketing for a New York City based multi-strategy fund.

Greed is Good - These immortal words spoken by movie arch-villain (and business school student uber-hero) Mr. Gordon Gecko, in the movie Wall Street, started myself and many other traders on a lifetime journey discovering the financial markets.

Most traders start out full of greed, feeling like masters of the universe. This feeling is only reinforced if the trader is lucky enough to have a big winner or series of wins right out the gate.

Unfortunately, the winning streak ends and the trader begins his real market education.

Most get washed out, quitting at the first sign of adversity. Although "greed is good" made a great line in the movie, the reality is far different for the vast majority of traders. Greed kills is much more applicable for the active market participant. On the other hand, greed is an essential component for successful trading.

It may sounds like an inherent contradiction - Greed Kills yet greed is essential for success? I will explain in this article.

It's Important to Realize There are Two Types of Greed

There are two different types of greed. The ego-driven greed and the controlled greed. Ego driven greed works against the trader. This is the greed the causes one to keep doubling up a losing position, become over leveraged, trade simply for the sake of the action, trade unfamiliar markets just because they are moving; forcing trades, challenging other traders, sticking with positions even though they are clearly wrong, among a host of others.

Controlled greed, at its core level, is what motivates one to participate in the markets in the first place. Knowing that by following one's rules and plans it may be a slow trip to success, but success will come in due time.

The controlled greed to improve in a step-by-step manner instead of making a market killing all at once is really the key to success in this game. It's a delicate yet crucial balance of greed that is essential just to survive in the markets, let alone thrive. Just how does one accomplish turning the bad ego greed into the good controlled greed?

An effective 3-prong mental system that should place you on the right track:

1. Understand the markets will always be there. There is no need to force a trade or trade for the sake of trading. Write this down and put it near your monitors and try to internalize this every time you sit down at your trading desk. Knowing the markets will always be there takes away the pressure of having to trade every movement while you wait for your own perfect set up to develop.

2. Admit you're fallible and that you don't know everything. This is critical in controlling the bad greed. The ego-motivated greed that keeps you in a bad trade just to prove that your analysis is correct is a primary cause for self-destruction in the markets. Admitting that you're guessing about the market prior to entering a trade is important. It's this realization that permits you to be wrong, which keeps the destructive bad greed from destroying your account.

3. Accept what the market gives you. For me, if I don't lose money it's a good day. If I make money it's a great day. I learned that by accepting what the market provides and not setting a monetary goal each day permits the trader to keep the ego greed in check.

It has been over 20 years since I heard Gordon Gecko utter the words "Greed is good" on the big screen. I and many other traders have learned the hard lessons of following that philosophy - watching myself and others blow up their accounts.