What have been said many time as a trader you need to preserve your trading capital.But trading is not just about managing your trading capital, but also about keeping your emotional and psychological capital intact. Today we will discuss how you can preserve your Mental capital and why this is more important than trading capital
If you have been an trader you will have experienced a loss. While experiencing a loss is less than enjoyable, the real danger of a losing trade is the threat it poses to your confidence and your mental approach.
Here are some ground rules to keep in mind for trades which do not turn out to be profitable and drain you from Mental capital also when loss becomes TOO BIG.
1. Understand the Every trade will not be a Success
You should believe that every trade you place, based on your trading system, is going to be a winner. However, realize that over a given length of time, at least some of your trades will work against you. Even a great trading system fails sometimes, so your job is to make sure your system has an overall net positive return. Thats why during our trading course we emphasize on back testing collecting data and reformatting your trading mind.
2. Cut losses.
It is critical that you be willing to take small losses before they turn into big losses. I can’t tell you the number of times I’ve heard someone say about a stock “I’m sure it will come back.”, only to see the share price continue to fall . Besides doing damage to your trading account, riding a loss can be a substantial blow to your trading confidence.
3. Don’t try to recover Loss immediately
Always remember Every trade is a random walk.What has happened before can/cannot repeat again. By this I mean don’t follow up a loss by placing a trade you wouldn’t have normally placed in an effort to make up for the loss. The past can’t be changed, so let go of it and approach the next trade in an unbiased manner.
When there is something to learn from a trading loss , then you certainly should learn it. More importantly, if what you learn is something that will improve your trading system, take it and apply it to your system. Your system must have an overall net positive result, but there is nothing wrong with constantly improving your system.
5. Don’t let losses paralyze you.
It’s just part of trading. While a loss may give us reason for caution, take a step back and look at your overall goals and your overall trading approach. If your confidence is injured, then paper trade for a while until you can see that your system has merit and you can trade successfully. It’s imperative that you don’t simply avoid trading based on a big loss.