Your Capital Versus Your Emotions
09/26/2014 6:00 am EST
Though Charles Booth of Day Trade the Indices never gives his subscribers specific dollar amounts when they ask how much money they should have in their accounts when they start trading live, he does offer them this bit of advice.
Many traders randomly set the amount of capital they maintain in their trading accounts. They do so in many cases without considering the impact their account size has on their emotions.
Every trader asks when they start trading live how much money they should have in their account. Although I will never give them a specific figure, I give them this bit of advice. If you lose your first trade, will the loss have an emotional effect on you that would prevent you from taking the next valid trade setup?
You have made a decision to be a day trader. This can be a very rewarding business; it can also be a very big financial disaster. You must be able to control your emotions in this business. When you begin trading your live account, there is no bigger emotional rush then when you see real dollars in your trade profit and loss (P&L) statement.
In working with traders, there are times that a valid trade will fail to produce the expected outcome. This is trading and you must expect that sometimes you will lose a trade, and sometimes several in a row. There is a significant risk associated with trading, you will never be able to control the market but you must be able to control your emotions. You will never be successful unless you can control that rush of emotions when you enter a trade.
Failure to control this emotion leads to poor trading. You can be certain that without controlling the emotional side of trading you will exit trades too early, hold trades too long failing to exit at a price level that the market was telling you should hold. Even more damaging to your self will be taking a losing trade and experiencing fear in your trading, which will lead you to not taking the next valid trade signal and not be in the trade that runs.
This is generally referred to in the business as trading scared money. Emotional trading is the leading cause of day traders not reaching their dreams. Take time to decide how much your startup capital needs to be—think it through—this will be an initial vital step as you begin on your road to being successful in this business.
By Charles Boothof Day Trade the Indices