The Fear Of Losing Capital
The fear of losing capital is one of the primary 4 trading fears that hinder the progress of new traders!
When a student asked recently us how to deal with it, this is what we said:
1. How much capital are you trading in terms of your weekly income? You don’t have to say numbers but – is it 1 week’s worth of income in your account? or 2 weeks? or 1 year? If you’re just getting started and feeling like even 1% risk is too much, trade 0.5% risk or lower the size of your account until you build up your confidence in an ultra low risk environment. My advice is to deposit an initial balance that you “mentally” write off. That way you won’t have any attachment to losing it. Combine that with the fact you’re risking just 1% of it per trade… and there should be no emotion at all. If there is, it’s because the fear isn’t about losing capital, it’s about your ego being bruised by taking a loss – and what it could mean for your future if you “kept taking losses” in comparison to the idealistic future you’ve set in your mind.
2. The next thing that helps with fear in any area of life is the realisation of what fear actually is. It’s a prediction that the future will reveal some kind of pain without a pleasure, setback without opportunity, loss without lesson… and although you’ll never eliminate the feeling of fear arising (it serves us at times, we need it), you can work through it by realising that no matter WHAT happens in your life – you will be presented with an equal and opposing opportunity for every pain, setback and loss you face. It’s a universal law. The positive is always there. Taking a losing trade is great… it causes you to analyse and reflect and learn a lesson. If the trade is good, and there’s no technical lesson to learn, then it builds the emotional strength you need to become a trader in the long term anyway. New traders on 2k accounts, risking $20 a trade lol – some of them completely freak out. It’s $20. It’s an insanely cheap way to learn. The lessons you learn risking $20 a pop will pave the way for you to scale up to the point you’re making $5-10k per trade.
3. Further from point 2 above, the debilitating side effects of fear only come when you’re operating from a victims perspective. In trading: “This bad thing happened to me”, “This strategy doesn’t work”, “Trading doesn’t work”, “My broker is ripping me off”… Both in trading and in life, nothing bad ever happens to you – everything is balanced. The speed at which you can identify the opportunity or lesson in perceivably “bad” circumstances is directly correlated to your level of wisdom. Make mistakes, learn lessons, learn them quick, don’t make them again, keep going until you’re a master.
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