They say that the market is ruled by these two emotions. Don't get caught up by these two. Our emotional state has a direct correlation to how we trade, after all we are only human. It would be nice to drive out all emotions from our trading but we would be no better than robot traders.
Fear is an emotion that stops us dead in our tracks. Whether we are trading based on historical data or of the fear of the unknown. It dictates our risk tolerance or risk appetite. One way to overcome this fear is actually to execute better trades. Once we have more confidence our fear of the unknown will diminish. In the back of our minds, there is always the fear of losing money on a trade. Again, if you can't sleep well at night then maybe you shouldn't be trading. Likewise, I feel a healthy amount of fear is good for a trader because they can get too overconfident which leads to greed.
After a fair amount of success a trader becomes too confident with himself and his abilities. Greed is the opposite emotion to fear, in that it is the emotion that makes us do things we would not normally do. The right amount of greed is necessary because it gives us the motivation to work at something, but when we are too greedy we will start doing things even when we know that we should not. In day trading, greed can make traders make random trades, or hold on to positions longer than their trading system dictates. For example, if a trader is watching a market moving strongly upwards, the trader might be tempted to make a trade even though their trading system says not to. The trader has allowed the greed to take control, and more often than not in this scenario, they will be buying right at the end of the move and will have a losing trade. The emotion of greed can be overcome by testing and then trusting in your trading system, and knowing that if you follow it correctly, it will make a profit without taking every potential trade.
