Emotions Are Not Trading Signals

Emotions Are Not Trading Signals

Traders hear the terms “buy fear and sell greed” over and over again. However, these sayings are meaningless outside the context of specific price action.

Here is some context:

Fear is not a buy signal. Fear can set up a dip buying signal with a good risk/reward ratio, or a short side trade out of an overbought area. Fear itself is meaningless outside of quantified signals.

Greed is what causes breakouts of ranges and big uptrends. Greed can cause bull markets to last longer than actually makes sense. You can’t sell greed short until it goes overextended, and shows signs of reversing.

Fear and greed are the primary influences that drive trends. The majority of traders and investors make personal decisions based on their own pain and greed threshold, rather than macro-economic and fundamental valuations.

You can’t trade emotional noise until it gives you a quantified signal.