Money management tricks in trading and investing that go unmentioned
As traders and investors, we deal with a digital representation of our funds. In this article, we introduce tactics to make digital money appear more tangible.
Money management tricks in trading and investing that go unmentioned
A particular aspect of trading and investing in the forex, futures, and stock market seems to go unnoticed to a lot of traders and investors, and it is something that has the potential to destroy your trading account gradually. It probably already is without your knowledge. As traders and investors, we are continually dealing with a digital representation of our hard-earned cash. As a result of everything being digital, we often forget the actual impact of dealing with the money we win or lose because we are not physically touching or smelling it. The effect of not having a physical feel of the money we are winning or losing cannot be overemphasized.
The primary issue with not being able to actually touch or feel the money we lose or win is that we become a bit unsensitized to the actual value of the money we are trading and investing with.
Physical vs. Digital money
We would like for you to examine these two situations and decide which would have you raging more in both scenarios.
Scenario 1: You withdrew a sum of $1,000 from the ATM to buy a birthday gift for your better half, but as you were leaving the ATM, someone runs out of nowhere and steals the money from you.
Scenario 2: You are trading on your laptop at home, and your stop loss got hit on a stock trade you entered five days earlier, making you lose $1,000 as well.
It is safe to bet that scenario one would annoy you way more than scenario two would. Still, the exact same amount was lost in both situations. What is responsible for this change in reactions?
In scenario 1, the money seemed much more real because you handled the money. You have touched it, seen it, and even smelt it. It was physically in your hands. Still, in scenario 2, all you had was a digital representation of the money, it didn't appeal to your other senses, and you didn't feel a sense of actual loss when you lost it.
You might be thinking about it right now while trying to convince yourself that you feel the same impact for both cases, and you do not need to feel the actual money to know the worth. It is actually quite messy to convince yourself that this does not apply to you because we have been at this point too a while back. The reason this situation is so incredibly common, and people tend to lose money frequently in the financial market, is because out of sight usually means out of mind. When you lose money on a forex, futures, and stock trade, it usually has a less devastating impact than when someone actually steals from you physically. The joy or excitement you also feel from winning a forex, futures, and stock trade is less compared to when you find a pile of cash by the road, even if they are of equal amounts.
Ways to ensure the real impact of winning and losing is felt
Our suggestion, as an online trading academy and licensed investment consultancy, might sound a bit unusual and out of the ordinary, but we can guarantee you that this works. Just like most people, we all struggled with money management at the beginning of our trading careers. Still, we were able to develop a method that would help us feel the real impact of our wins and losses. For this, you would need to get two large jars labeled profit and loss. After getting the jars, you would also need a set of poker chips to which you will then assign different values that would eventually add up to represent the total amount in your trading account.
After every forex, futures, and stock trade or investment, you would take the chip with the corresponding value of the trade or investment and place it in either the profit or loss jar depending on the outcome of the trade or investment. You would need to put these jars somewhere visible to you, where you can always see them as you are analyzing the financial market, contemplating a trade, entering a trade, or exiting a trade.
The effect of this would be that you have a constant physical reminder of every forex, futures, and stock trade you lose or win. It gives your senses something to process because now you have a tangible thing to see and touch to remind you of the money you are either losing or winning. The money will no longer be a digital number just rising or falling on your screen, and you would be able to get a real sense of how well you are managing your trading account or how bad you are. More importantly, the jars and the chips will remind you of how well you are sticking to your trading plan and the results of staying true to the trading plan or how much you have deviated from it and the consequences of such actions.
Except you are one of the rarest species of the very few extremely disciplined people we have on earth, you most likely struggle with staying true to your Supply and Demand trading strategy sometimes. You might also get frustrated and tired of waiting patiently for high probability Supply and Demand trade setups. You probably also have issues with keeping your risk per trade below a predetermined maximum dollar amount. One primary reason most forex, futures, and stock traders and investors struggle with all these things is that there is no one to be accountable to.
If you were to be employed by someone, you would have to report to your boss daily, and assuming you make a silly mistake or a wrong decision, you might end up getting sacked, which makes you accountable to someone. As a trader and investor, however, you are only accountable to yourself, which means you might end up letting a lot of things slide as opposed to if you had someone monitoring your trading that you would have to report to. Letting things slide can include entering the trading arena without proper analysis or without seeing a high-quality Supply and Demand trade setup. It could also involve emotionally doubling your risk to make back the money you lost. The sad part is that there is no real consequence to any of this decision except losing money, and it is not even real money; it is just a decreasing number on your screen. Trading and investing substantially makes you desensitized to the money you are making or losing.
Money management can be extremely difficult for most traders and investors, and having a physical representation of the money you are either winning or losing can go a long way to wake you up to the reality of your decisions. Much of your money management will revolve around understanding the full impact of your win or losses and learning how to manage them accordingly. Using chips or monopoly money will enable you to see the real-life consequences of your trading decisions. It will help you understand that you are dealing with real money that can actually help build you a better life. You should never gamble with your money.
Seeing your money management ability is crucial
The chip trick or monopoly money trick gives you more than just a physical representation of your money but also something to stay accountable to as you trade and invest. You are the only one conscious of your trading results, so having a physical representation would be a good idea to help you stay on track. If you live with others, you can lie about your results and refuse to face reality. Still, if you have a physical representation of how well your trading account is performing, then everyone will see and will be able to hold you accountable to it. It will also be self-evident when you start deviating from your money-management plan.
It is quite easy to slip into a streak of losing trades and start trading without discipline when the losses are not visible and are comfortably hidden away in the trading account history of your trading platform, with the option of never looking at them if you opt not to. Using chips or monopoly money, however, stays as a constant reminder of how well you are doing and how much discipline you are exercising. Breaking that discipline brings consequences, which you can see in reality through the chips or monopoly money, reminding you that you lack the discipline to trade successfully.
The major lesson we are considering today is the fact that money management and discipline can be a bit hard to maintain because, as a professional trader and investor, every decision is made on the screen, and the consequences are digital as well. As such, forex, futures, and stock traders start viewing their wins and losses as insignificant and start abusing their trading account.
To assist in dealing with this feeling, it will be helpful to make use of the chips or monopoly money to help quantify your wins or losses in a physical sense. This trick is to help you develop the necessary discipline to succeed as a trader and investor. Once you have successfully developed the habit, you might no longer need the chips.
To make it more effective, you can have a reward-based system for encouraging yourself anytime you follow through with your trading plan. This will make it more exciting and help you build the mental energy required to keep going. Once you have mastered the act of discipline, you are more than halfway through with the process of becoming a consistently profitable trader and investor. All that is left is to combine such discipline with the Supply and Demand trading strategy that we teach in our online trading academy, and you would be fully equipped to start making money work for you.