Scared money doesn't make money.
I've seen this floating around a lot lately, and while it's true, it comes with a caveat like most things in the markets.
When trading the markets, there's no reward for being tough. There's no reward for being stubborn. Those are my concerns with the saying. Some people equate this to be being weak. Selling for a loss could be argued as someone being scared. Selling because a stop has hit could be viewed as being scared. Changing your mind could be seen as being scared.
The saying, on the surface, is dangerous yet true.
Confused yet? Yeah, me too.
The saying isn't about refusing to take losses. The saying is about preparation and confidence. Scared money is money uncertain of the position the moment they enter it. Jumpy fingers, bouncing legs, a general nervousness or worry about losing money. It prevents traders from letting winners run. They are too concerned about it turning into a loss. Sometimes it causes them to double down quickly -- often too quickly -- on a position because they want to do whatever they can to get their P-n-L showing a gain on every position even the ones they just entered. It's getting shaken from a position when nothing about your thesis for entry has changed. That assumes the trader had a thesis.
It's also about overleverage or trading with money you can't afford to lose. Or may you "need" to make money in a certain timeframe for whatever reason beyond an arbitrary one.
Scared money is money that cannot afford losses. Scared money is taking on more risk than it should. It has nothing to do about gains and losses. It has nothing to do about right and wrong. It should have nothing to do with being stubborn either. Being stubborn is stupid money, not scared money.
If you find yourself identifying with the idea of scared money, the first thing you need to do is pull back. Don't overtrade. Cut positions in a fashion that reduces your anxiety on what you hold. The challenge here is any initial sale will likely result in a trader still watching the position and either cursing themselves if it goes up shortly after they sell, or worse, something they chase again if it does up after they sell.
You have to approach it with a clean slate in mind. It would behoove many to "start over," either by selling out completely and rebuilding or selling what they need to obtain initial comfort, then walking away for a week or two. I can almost guarantee there will be new opportunities when you return to your screen, but I won't lie, it will be difficult initially. That being said, you simply cannot trade scared. You have to trade smart. You can have the best analysis in the world, but if you have twitchy fingers immediately after hitting the buy button, it won't matter as you won't be in a psychological position to succeed.
As we head down the runway to the election, not being in a scared position may matter now more than ever.
"trade" - Google News
October 06, 2020 at 01:48AM
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You Cannot Trade Scared, You Have to Trade Smart - RealMoney
"trade" - Google News
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