Why Preserving Emotional Capital is More Important Than Physical Capital

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After teaching and coaching traders I have seen firsthand the detrimental effect of failing to preserve emotional capital, and what it does to a trader’s psychology. Every time your account draws down more than an acceptable level you lose emotional capital, as well as physical capital. When you repeatedly break your rules you lose emotional capital, and when you have been at this for years and years and years and have yet to see profits it takes a toll on your psychology, and emotional capital is lost.

After a sustained period of losing you have to realize that you are no longer operating in the optimal mental state. Your decision making gets clouded and that results in poorer decisions. You may find yourself in a hole you just cannot dig out off, and a state of depression sets in. I want to discuss how you can prevent this, but also how you can get out of this state if you have already lost more emotional capital than you care to admit.

First, you have to set an appropriate level of risk and a drawdown level that you are comfortable with. When this gets hit you stop trading and do a serious evaluation of your method and psychology. Taking wild risks and trading when you have no real strategy will take a huge toll on your emotional capital. At this point you will lose the will to win and you will always trade based on fear. After a prolonged period of losing you must stop trading and not only do an evaluation of your trading, but move to SIM (simulated trading) to preserve your emotional capital.

If you have been a losing trader for years and have lost a great deal of money, then you have to wake up and realize something is not working. STOP trading and hit the drawing board, seek out an education and learn how to trade on a professional level. You cannot afford to lose any more emotional capital and you will need to build up your confidence again. Confidence is built by seeing and seeing your method work over and over to the point that it just hurts not to trade. At this point you will truly believe in your ability to trade and that is when you will know you have regained your emotional capital.

I do not know why, but when I tell traders to stop trading they always have some excuse why they must trade. “I know I’ll get it back” or “I have to get it back” is what I hear most. Traders tell me that they can’t just give up, and I tell them I’m not asking them to give up, I am asking them to keep pressing forward in a strategic manner that will lead to their success.

I created Optic Trading for struggling traders everywhere and I know what struggling feels like because I was once where you are. If you are reading this post and it resonates with you then it’s time to wake up and get serious. Invest in yourself and in your future. I have created a world class training program that will get you where you need to go, the question is do you have what it takes to dig deep, work hard , and get educated? If you have read this far I know you have what it takes, now let’s get to work!


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