While there are three parts to every trade, the greedy trader pretends not to know. The three part parts are the stop loss, the entry, and the profit target. You should know all three parts of the trade in advance be placing the actual trade. This helps to keep us from emotional trading. This often happens when the price action is moving fast. If the chart you are watching is moving fast, very often new traders will chase the price. They will enter the trade with no regard to where their stop loss or profit targets will be. They need to be in the trade because it is moving, and moving right now! Some call this being greedy. This is actually another form of fear: the fear of missing out (fomo)
These inexperienced traders will pay any price. They belief that if they aren’t in this particular move, their success as a traders will diminish. Nothing could be further from the truth! By chasing trades or trading in way, their long-term success will suffer! With that said, what then is being dumb greedy vs. smart greedy when we actually do plan out our trades in advance?
The dumb greedy trader will expect to squeeze out every last pip in a move. He does this by attempting to enter near the absolute bottom and exit near the absolute top. While this sure is nice when it happens, in my 20+ years of trading, it may have happened to me once. It isn’t something we expect to happen, and here is why:
In this NZDJPY four hour chart, I’ve marked in an obvious demand and obvious supply zone. We could consider going long at the demand zone, around the 72.50 price with a stop loss at the 72.20 price. In this instance, if you were very lucky, the will fill your order near the very bottom of the zone at about 72.35. If so, nice entry! Since our rules state that our stop loss goes below our entry zone for a long trade, 72.20 is fine for discussion’s sake. This then gives us a 30 pip stop loss. Again, according to our rules, our reward should be at least three times our risk. So a profit target of at least 90 pips is in order. Ninety pips above our entry would place our target at 73.40, and on this chart, we could do much better. But how much better?
Some traders, who use support and resistance, would look at the 75.25 level. And say that our exit order should be place at that point. Because institutions trade with zones and move the markets with their orders, i exit my trades BEFORE they do. I would rather get out of this long trade at about the 74.95 price point. I expect the big institution sell order that created this supply zone to push prices back down. This would be smart greedy. By taking what to be the majority of the move instead of trying to squeeze every last pip out of the trade. The greedier you trade, the more pips you miss! Imagine trying to get out of this long trade at 75.25. And as you watch the candles slow down, you might not get out until 74.70, or even 74.50! If you had set your exit order ahead of time, 74.95 would have been an easy, no stress exit.
So, to summarize: Trying to make every last pip in the market moves is a waste of time; it will stress you out as well! Go for a significant amount of the move, relax and take the easy pips. Be smart greedy, not dumb greedy!
Source: Online Trading Academy