losing your head

Trading Bank Size

losing your headIt’s easy this whole trading thing. If you’ve just started out and anything you buy just keeps going in the right direction… up up and away the prices soar of your stocks. The Ferrari is on order and coming soon. You buy more stock and woosh… up it goes again.

Strategy and discipline leaves the conscious mind and greed replaces it.

Your whole bank is invested. No insurance trades taken. You don’t even need charts anymore. You’ve totally lost your head and just don’t know it.

Wobble… eh? Hold on a minute; the price is coming down. The markets must be wrong because I can’t be. They’ll go back up tomorrow.

Whooo steady on, the charts say sell now but that can’t be right. If I sell now I’m going to lose way too much £££, I can’t afford to lose that much so I’ll hold on.

That’s better, I knew I was right. Moving back up now, and to think I was even considering selling when the system said I had to!

Ahhhh… what the ****! This can’t be ******* happening. How the **** has that happened. I just can’t ******* believe this ****. I’m ****** totally.

One of the biggest hurdles when trying to learn to trade the financial markets is trading in your comfort zone with the correct trading bank size. If you can totally detach yourself from your trading bank you’ll stand a far greater chance of success in the long run.

Taking a loss is hard for anyone, but it will happen trading. If the thought of losing £5000 overnight is unbearable don’t trade with it. If losing £1000 overnight is chicken feed you might not take investing seriously enough. The idea is to try and find a starting bank that suits.

The sweet spot for your trading bank is that point at which you’re not going to panic and make irrational decisions if things go against you. But it needs to be an amount that still gains enough respect from you that you do not consider the bank just gambling money.

It’s tricky to do but it is a factor of trading that may define your success or failure.

If the markets hurt you [financial loss] as a beginner trader, it can affect the way that you progress from then on. You may give up with trading if a loss of 10% of your £5000 bank feels far too uncomfortable. But with a smaller bank of £2500 and the same 10% loss of £250 you may still feel slightly upset at the loss but you still have the determination to continue.

From then on you can adjust and keep to your long term plan.

Comfort levels in trading are a big deal but so often overlooked. I have regularly heard of stories of traders that just can’t bear to take a small loss so they hold on and take a much bigger one.

That’s not trading, that’s gambling. Know the difference and become a trader not a gambler.