New traders want to know how much they can make. If they have X dollars in their account, how much stock can they buy and how soon can they get rich?
Veteran traders know better. They became veterans by surviving. They endured the occasional painful losses, yes, but even more so, they were able to withstand the times when trading just has very little to offer. Veterans are willing to wait out the slow trading times without putting it all on the line to make a quick buck or add some excitement. A veteran trader will tell you that goal number 1 in trading isn’t about how much you can make. Goal number 1 is all about protecting your capital and staying in the game.
Trading capital includes the cash you have to trade with…….your seed money…..your bankroll. It’s what you absolutely must have to stay in the game, and only then can you reach toward goal number 2 – making money. Protecting the cash in your account will enable you to seize opportunities when they arrive so that you may profit.
I think there’s a certain amount of emotional trading capital each trader begins with as well. To me, it’s as important as the cash in my account, because I could always borrow additional funds to trade with if it came down to it. I take as many precautions to protect my emotional capital as I do to protect my cash. If I lose my confidence trading, then it won’t matter if I have cash left to trade with! If I get on a losing streak or overtrade when the market is choppy, then I end up confused and clueless what to do next. That’s no way to make money trading! Protect your emotional capital too – get smaller when you’re trading poorly, or step away entirely when things aren’t clear.
Always keep these two goals in the proper order and don’t ever forget your primary objective every day: survival! Protect your capital and you’ll stay in the game plenty long enough to reach goal number 2.
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service