While a healthy fear of the markets leads to proper risk management and discipline, excessive fear of losing money impairs our decision-making process and leads to trading losses.
There is a principle in sports, religion, parenting and many aspects of life that applies very well and very quickly to trading: that which you are willing to set free and let go, will return to you many-folds over. In basketball, the best shooters are the ones who aren’t afraid of missing and will keep shooting no matter the short-term outcome. In Christianity, you have to “die to yourself” and accept the divinity and substitutionary death of Christ to be free and become “yourself more fully.” In parenting, you have to let go of the protective grip over your children to be able to see them come back to you in adulthood. Examples in life abound. In trading, you cannot worry about what happens to your money. You have to accept the fact you are in dangerous territory, therefore you make a plan and you trust the plan. If you fear losing your capital, you will start to second-guess every decision. Losses will create stress, which confirms your fearful bias, which leads to more confused decisions, and more losses. Some traders call this fearful style of trading “trading your balance,” because you are constantly looking at the ups and downs of your account’s net liquid value instead of the markets.
The proper approach to trade care-free is to:
a) Only trade money that you willing to completely loose
b) Trade the markets, not your balance
c) Stick to your plan and walk away from the screen
Photo Credit: Heather Paque at https://pixabay.com/en/money-donation-donate-profit-give-652560/ via Pexels.