There is one aspect of trading that most traders pay little attention to. It is how to manage the capital. If you don’t know how to control the money, it can slowly destroy your account. That’s why I write this article to share some tips to help you manage your fund in Forex trading.
As a trader, you work with computers and smartphones. The numbers that represent the money in the account are also electronic numbers. As a result, you lose your sense of the real green banknotes from losing or winning orders. You can not touch, feel, or smell them (only after withdrawing and holding them in your hand). Not having interaction between us and real physical money is not good in my opinion. This brings us many disadvantages.
Some tips to manage capital when trading Forex
Physical money and Electronic money
I come up with two situations to ask you which of the following would you find angrier.
(A) One evening, you were standing in front of the ATM to withdraw $500. Suddenly, two robbers snatched up the $500 you had just withdrawn and escaped on a shabby motorcycle.
(B) On the same evening, you were sitting on a cushioned chair in a tank top and shorts, next to a bottle of wine with a cigar. Then, quite unexpectedly, your order hit stop-loss and your account lost $500.
I am sure that the first situation will make you madder. Losing the same amount of $500 in 2 situations, but why is our reaction different?
In the first situation, the money is more “real”. You are holding, feeling, maybe smelling them in your hand. You have physical contact with them. In the second situation, the money lost is simply that the electronic value on your account has been deducted by 500 points. You feel no obvious material damage on the $500 lost.
I know and understand what you are thinking now. You think that there’s no way you don’t feel anything when losing that money on your account. Yes, I’ve thought the same thing before. The truth about one of the main reasons why traders lose money on the market is because of that “no see, no feel” aspect.
When you lose money on an order, it affects you less than losing money when robbed. When you win an order, this money does not make you as happy as stumbling onto the same amount of money on the road.
How to feel more clear about the impact of the winning/losing orders
It sounds silly, doesn’t it?
When I first entered the market, I also struggled with capital management like most other traders. I came up with some Forex trading tips to make the win/lose orders more “real” and more valid. I bought a poker set to pick up some chips, which would represent exactly the amount of money in my account.
Next, I bought 2 (nice) bowls, 1 for Loss, and 1 for Profit. After every order, I put the number of chips corresponding to the profit or loss into respective bowls. I place these 2 bowls on the trading desk, right in front of me so I can always see them (or even touch).
The effect of this is very clear and good for me. I have more real things to feel for each of my transactions. I no longer only see the electronic numbers because I have a ton of more “real” poker chips in front of me. When the Profit bowl is full, I understand that I am doing the right thing. And if the Loss bowl gets full, I will have to review and self-criticize. These give me a clearer sense of the electronic numbers on the screen.
Unless you are the world champion of discipline, you are probably still having (major) difficulties in complying with your trading strategy. You have difficulties becoming patient and “preying” for really good and clear opportunities in the market.
One of the main reasons for the question of why you are still struggling with that “crowd” is because there is no one to supervise or urge you, other than yourself. Buddhism has a saying that I like, that is “The greatest enemy in life is oneself”. Trading is really a war with each of us ourselves.
When you go to work every day, you have many bosses on different levels, assigning jobs for you. You work inefficiently, you will be fired. You are under the supervision of one or several people. As a trader, no one supervises you at all. And sometimes you think that if you have a boss like at the office, you will be more disciplined, and do better. If you’re going to jump into the market without a clear signal, the boss will knock your head and say: “Do it and you will get fired”.
Capital management is always one of the most difficult skills in trading. So try to make more of the “real” presence which gives you a more “real” and powerful impact. As I took the poker chip example above, you can use other things. It is up to you. They help you feel more “real” with every winning/losing order and with every money you earned/lost, etc.
Always CONSIDER managing your capital very important
Poker chips can help you be more responsible for your trading.
However, winning/losing, how much money you make, only you can know. Owning 2 bowls of Profit and Loss is also for your family members to see the performance of your work. This makes you more focused and responsible for each of your transactions.
You will feel a little more pressure as well as motivation to be more careful with your account. You don’t want your close friend to see a Loss bowl full of chips, do you?
Like a boss, the lifeless poker pile reminds you how well, or how badly you have done via the results.
The key point I want to share in this article is: Discipline in capital management is extremely difficult because everything is done on the computer screen. There is no tangible/physical feeling when you earn or lose money.
Poker chips (or other stuff) will help your results become more “real”, helping you be more disciplined. I recommend (try) doing that.