Do you still enjoy trading? Do you like to analyze the markets, plan trades, read about trading and face the daily challenge that trading poses?
I hope you do because you’d be surprised about how many messages I get from people who do not fully enjoy trading anymore and they just force themselves to go through their routine.
Of course, acting from such a place makes good trading impossible and we must advoid such a state.
The keyword here is mental capital and it is so important that we protect our mental capital as traders.
A trader with a good balance of mental capital enjoys his trading routine, he does not get discouraged by losses, he enjoys to learn and develop his skills.
How we lose mental capital
Losing a trading account, realizing big losses, repeating the same old mistakes and not seeing progress will quickly deplete your mental capital.
Ever little error or failure will chip away from your mental capital balance until there is nothing left.
Losing a trade is normal and a regular loss will usually not harm a trader – as long as he can put the loss in the right perspective.
But losing money in ways that should have been avoided (revenge trading, adding to losses, over-leveraging, breaking rules, etc) will quickly eliminate all your mental capital.
At one point, a trader will throw in the towel, start gambling his money away, take random trades, break all rules and eventually lose all his money and his joy for trading.
We usually know what we should be doing and we also are very aware when we do something that we are not supposed to do. When our bad decisions, especially when they are repeated over and over again, lead to bad results, it quickly demotivates us and we become frustrated with oursevles. That’s when mental capital is destroyed.
Furhter reading: 5 truths that changed my life and trading forever
Keep and regain mental capital
If you want to be a professional trader, make a living trading and do this for the next decades, you need to care for your mental capital. Here are my top tips when managing mental capital.
- Have a why – money isn’t enough
When I ask traders, why they are trading, money is the obvious answer. But money alone is a bad motivator and just pursuing money is not enough to keep you going during hard times. Instead, think of what it is that money will allow you to do. Do you want to stay home with your family? Do you want to supplement your income and retire early? Do you want to travel more? Whatever it is, become clear about it. Often, traders will then realize that they do not need to make millions to fullfil their way which is liberating and motivating.
Trading isn’t about sports cars, new Rolex watches, big yachts, penthouse apartments and private jets. You have to detach yourself from such an image and think long-term. A trader who has unrealistic expectations is easily demotivated and becomes frustrated when he sees that his “goals” are impossible to reach. This will erase all mental capital immediately and you will stop caring about trading.
When our students hit a brick wall, I try to remind them how far they have come already (read about our course here). It’s so easy to lose perspective and when constantly pushing forward we then do not recognize progress and feel like nothing works. Step back, see how far you have come and recognize that you are on the right path.
I hope that you now understand what mental capital is, why it is so important to protect it and how you can improve your mental capital.