The most quoted trading axiom

[3BlackCrows]

I never understood the statement 'only trade with money you are prepared to lose'

While sound in a theoretic sense it makes no sense to me in the practical world.

Think about it:

If you can afford to lose that money, how will you treat it? What will be your values associated with that money?

Will you risk more, enter extremely higher risk trades and trade illogically knowing that it doesn't matter if you win or lose your account because you were simply doing what was advised?

Subsequently what would be your attitude if you knew you couldn't afford to lose it?

Would you risk less? Trade on lower leverage, and only take trades that have a high degree of success?

I'm not saying you won't blow your account trading like the latter.

Nor am I saying people should gamble with their life savings or mortgage money but at the same time I hate losing money (though I am prepared for losses) so I when I do lose a trade I want to make sure it's as little as possible.

I've found that people respect their property/money more if they've worked hard to earn it whereas people who have things given to them on a silver platter tend to respect it less.

Any thoughts?

 

[Lerakas Libra]

Hi 3BlackCrows

I think it's better to say: Don't trade with the money you might need tomorrow.
Besides who is ever prepared to lose some?
If there are, they will be most welcome at any broker I guess.
But you are right in saying it might open for the wrong aproach!

 

[Cyclon]

Good point 3blackcrows

that is such a GOOD point 3blackcrows

myself, I only ever learned the hard way

 

[iamarto]

another quote

I found this thread relevant to a funny quote I found during reading..

"Don't worry about where the prices are going, worry about what you're going to do when they get there"-- Richard Denis

 

[kamoro]

Good point

What ever they say, your last line is very true.

I've found that people respect their property/money more if they've worked hard to earn it whereas people who have things given to them on a silver platter tend to respect it less.

 

[rpaco]

So if you went to a Casino, with some money to play with, would that be different to the money you trade with?

 

[3BlackCrows]

So if you went to a Casino, with some money to play with, would that be different to the money you trade with?

Not at all Rpaco. Thank you for bringing up an extremely good point!

The difference seems to be only the importance the gambler places on that money.

The people that come out on top gambling and truly care about their money are much the same as the people that come out on top trading and truly care about their money.

In a Casino you are gambling - you have a 1 in how many million? chance of winning.

Like any trader there are 2 different types of gambler:

1. The ones that go to Casinos with their rent money, mortgage money, utility money etc... and it shows in their actions that they have past caring about what happens to that money. They rely solely on the roll of a die to determine their future.

2. The people that care about their gambling money. They devise systems that have a high probability of winning. Card counters are a prime example.

Card counters playing BlackJack for example care about the money they are playing with. They want to lose as little as possible and you can spot them a mile off. They will place very small bets (trades) at the beginning, memorising the cards being played the whole time.

The more cards played, the more information the card counter gets about what is left in the deck and the probability increases of a win. This is like researching a particular stock or currency for a trade.

Once the probability has increased to a critical level for the card counter, you will see them all of a sudden place extremely high bets on the table and the next thing you know they are walking away with a bundle and the Casino doesn't know what hit them.

This is the exact reason why 3 - 4 deck BlackJack was invented and why people are constantly watching for card counters.

Likewise the people that care about their money who bet on horse races will research the horse, its form, whether it runs well on a dry or wet track, the weather conditions, even the compound in the horse shoe that's been fitted.

In Trading it's the same:

1. People who base trading decisions on a hunch with no real research or indications to back up that hunch are gambling and their actions tell me that they don't really care about their money otherwise they would trade differently.

However in saying that at least in Forex you have a 50/50 chance of being right.

2. Traders who have devised a system AND stick to it care about their money. They will trade (like the card counters) based on a high probability of being right and only enter trades accordingly.

They are TRADING rather than GAMBLING and win or lose, they will always live to see a profit on another day.

 

[Migo]

Don't involve your family in your RISK. Play with money YOU can afford to loose. I think your mental state is a bit different if you know your kids and wife will be living on the streets, if this reversal happeneds. But if you know, you might miss your next car payment if you loose, its not that big of an issue.


If you have issues understanding that saying then money really isn't an issue for you! And I wish you even more success.