In trading, I believe there is such a thing called “psychological capital.”
Think about it for a second.
Whenever traders decide to quit and give up on trading, it is not really their money that has run out. What has really happened is that they have exhausted their psychological capital, preventing them to move one. After all, when their account balance has dried up due to losses, they can always work again, save money, and start anew.
More than the money you put in your account, you also invest your mind in trading as well. As such, you must grow your psychological capital just as you would your initial money capital.
But to clear up any confusion, let’s first define what psychological capital exactly is.
The amount that of psychological capital a trader has represents his ability to withstand the psychological effects that come with being a trader. It dictates how he’ll react when he is losing or winning and what negative effects it will have on him.
It is important to keep in mind that if we are not careful, poor trading can also exhaust our psychological capital. Notice that I didn’t mention the word “losing” at all – winning, as well as losing, can have a detrimental effect on psychological capital as well.
For instance, a trader can damage his psychological capital if he becomes too arrogant after he wins and looks past simple but important details like setting proper stops in his future trades.
On the other hand, a trader who is experiencing a drawdown can lose psychological capital too when he becomes too depressed and refuses to look back at his trades and learn from them.
As a trader, it is your job to not only increase your trading capital, but your psychological capital as well. Moreover, you must learn how to grow our psychological capital both through losing and winning.
When you are losing, you can strive to treat each trade individually and to not let it affect the next trade, even if you’re on a massive losing streak. When you are winning, it’s important to look at each trade and see what the reasons why you won were. You may learn that more about yourself and which trading system suits you best.
The importance of growing psychological capital is probably even more important than increasing your account balance when talking about long-term trading success. Psychological capital is what will enable you to stay in the trading scene and endure all the ups and downs of trading.
The amazing thing about psychological capital is that you can grow it even though you win or loss.”