How to manage our emotional capital
protecting emotional capital is often more important than preserving financial capital. A trader who loses their emotional capital can clear his or her account or completely withdraw from trading because he or she can not manage their emotions properly.
Whenever a trader loses or makes a mistake, he loses emotional capital. Usually, it starts slowly but can quickly escalate and after a series of losses or months without significant improvement, the trader is more likely to drop everything and leave.
One lossy transaction can lead to another one to win back, which in turn leads to even more loss that immediately brings up a huge drawdown, and you have no idea how it happened.
It is important to monitor your state and emotional capital week by week. Even a small string of losses or bad transactions can easily lead to emotional trading, impulsive mistakes or lack of discipline. It is extremely important to manage your emotional state and to take care of your emotional capital. But how to do it? Below you’ll find a few tips.
Separate the platform with charts from the one you trade on. Control the risk and respect your stop loss. After a lossy transaction, go out and do some sport to clear your mind. Record your transactions and review them. Reduce positions during lossy periods.