“I Trade Therefore I Eat”

Tuesday, August 10th, 2010 Your Mental Game by admin

Ever heard the phrase “I think therefore I am.”  I have a couple of new ones.  First one is “I eat therefore I am.”  Makes sense you have to eat to live right?  How about “I eat therefore I trade.”  This may not make sense immediately but is very important to us gonna be forex traders.

A couple of years ago I was inspired like so many other forex traders to give it 100%, take my shot to go from 9 to 5 slavery to trading glory and freedom as presented by so many of the great forex internet marketers and guru’s.

In two years I learned that you can’t buy your way into trading and you better have the means to eat while you trade therefore the expression “I eat therefore I trade.”

In fact it is exponentially harder to trade the money you ultimately need for your daily life (probably the definition of what is and isn’t considered true risk capital).  Therefore this article applies especially to those retail traders who are giving up their day jobs before they have proven themselves as bonafide profitable money making traders.

A better strategy is to keep in place what keeps food on the table and trade with what time is left.  I know that is hard for some of you die hard traders out there that should be in the 12 step program DTA (day traders anonymous – which I have founded J).

“Baby needs a new pair of shoes” can not literally mean if I don’t win this trade I can’t put shoes on my kids feet.  Most of the successful daytraders I’ve met have a cushion of money that can support them for some time and they use true risk capital to trade with emotional freedom.

A friend of mine and former floor broker on the CME said that some of the biggest players on the floor were guys that came from a “candy fortune” or owned a “diamond importing business” and they would take some of that candy money and trade the action on the floor.  If they lost it all they just came back a few months later with more candy or diamond money.  The worst cases were always the guys who put it all on the line and had no business to back them up when they blew the big trade.  He told me he could count on two hands how many times he lost 100k in one trade or day but it didn’t matter because he knew he had money coming in from his brokerage and he was one of the ones that never went broke.

One simple strategy I picked up from a pro trader is to subdivide the amount of money you have and trade in segments.  It’s kind of like shooting a gun with one bullet or five.  Regardless the size of the bullet or the account having a one off shot at hitting the target puts greater pressure than when you have a whole round of 6 to shoot with.  Knowing you only need to hit the target with one bullet to win you can shoot and trade with less pressure.  So accordingly if you subdivide your money and trade with 1/5 of your balance if gives you the emotional freedom to trade that account with appropriate risk knowing that if something goes wrong (you breakdown emotionally on  bad day and overtrade, break rules, etc.) you have 4 more shots at hitting you trading target with the money you have to trade with.

Regardless of whether you have a little account or a big one we hope that all of us get there before we run out of money.  The best way to do that I know is to keep those day jobs until you’ve proven 100% without a doubt with real money you have broken through and can work through the emotions of trading as a profession.  Besides there is nothing wrong with putting an extra year or two salary in the bank from your trading hobby job before you go pro.  Hopefully before you know it you will be going from “I eat therefore I trade” to “I trade therefore I eat.”