“Let’s see, we’ve got a few hundred dollars coming in this week for our mortgage, but we can put off paying that for a couple weeks. I think I’ll just pop it into our trading account and see if I can double it before our mortgage is due.” Have you ever had that thought? Or, worse yet, have you ever done that? Have you ever put your last dime into a trading account, hoping to “make a few bucks”? In case you haven’t already discovered this fact, let me spell it out. That’s a VERY BAD IDEA.
As a trader, I’m sure you have heard (or will hear) the term “scared money”. Scared money is money that you cannot lose. Money that should be going to make the car payment or the house mortgage payment or to pay the doctor’s bills. Scared money should NEVER be trading capital.
Profitable trading requires control of your emotions. Most especially, it requires control of fear and greed. Trading with scared money increases the fear factor dramatically. This is money you absolutely can’t lose, so you will fudge on your rules. Maybe hold a losing trade longer than you should in the hopes that it will “come back.” Or you will not allow the trade to swing far enough on the negative side to work properly and you will be closing trades early and chipping off small pieces of your scared money until it’s gone. Or you won’t allow a trade to grow to its full profit potential because you’re afraid it will turn and cause you to lose your scared money.
Proper trading capital is money that you can afford to lose without affecting your lifestyle. You should never trade with money that should be going to pay the power bill or the kid’s orthodontist. You should ALWAYS follow your trading rules and “No Scared Money” should be in the top five of those rules.
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