I am sure 99% of traders have watched the film Wall Street, the one with Bud Fox and the legend himself, Mr Gordon Gecko. There is a scene in that film where Mr Gordon Gecko gives a speech to a group of shareholders and says “Greed is good!” implying that greed helps us improve performance because of desires for increased financial gains. In some ways, this does make sense and it is why many of our public services in the UK (Royal Mail, Train Services etc.) have been privatised. However, when trading the financial markets, greed can often lead to missed opportunities and unnecessary losses. Trading is a long term game where consistent returns compounded over time leads to the best results.
If you want to watch Gordons “Greed is good” speech then click here to watch it on youtube. I also highly recommend watching the film.
So why might greed not be so good after all?
I consider greed to be an emotion and as we all know… emotional traders tend not to be the best traders. Greed can make you take trades and enter positions that may not meet your strategy and greed can cause you to double down on losing trades and hold winning trades for too long.
Last week I spotted a very simple day trade entry on the GBP/USD FX currency pair chart. Price was stalling at a key support zone and there was a decent Reward : Risk ratio set up appearing. The effectiveness and the success of this trade almost entirely relied on a lack of greed when placing my profit target. I published the set up on Trading View which is can be found via the link below.
The analysis and reasons for me entering this trade are marked on the chart above. You will notice that the chart is very clean and simple with only 1 real technical indicator being the 50 exponential moving average (ema).
However, this blog post isn’t about why I entered this trade, it is about why I exited the trade where I did with a simple profit target at 1.3150 netting a decent R:R ratio of 1.8 : 1. The elimination of greed from trading allowed me to get in and out of this trade with almost perfect timing for near maximum profit is the reason for this post. Let’s look at how the trade went and I will then talk you through my exit positioning and why greed could have cause some traders to lose out.
As you can see, price almost immediately gained short term bullish momentum and swiftly bounce off the 1.31 support zone before going on to reach my profit target at 1.31500. This trade reached target in less than 1 hour of being entered and I personally think the main reason for this is the increased volume around this key zone. That is why I mark on these zones… because they provide movements in the markets.
So why did I have a target profit and trade exit set where it was?
This is where greed was controlled. I could see that price was making lower highs on this time frame and price was currently below the 50 ema and daily pivot level. These were all potential levels of resistance that would stop price from climbing higher than my intended profit target. The Reward:Risk ratio was still close to 2:1 which, in my opinion, is very good for a quick day trade. Yes, price could have gone up to touch the bearish trendline or the daily pivot level exactly but it didn’t. Any traders targeting this levels or higher would have ultimately ended in a breakeven trade or worse… a loss.
As you can see on the chart above, price rocketed to my profit target and then almost immediately reversed all the gains made. I could see from my analysis that price was most likely going to make a lower high and this position was trading against the trade and this is why I was not greedy and took all profit at the 1.8 R:R zone.
You can see a full replay of this trade by clicking here and viewing it on the Trading View platform.
Thanks for reading and remember… Greed is not always good! Despite what the legend of Wall Street will tell you.