Page 465 - THE MARKET WHISPERER

THE MARKET WHISPERER 46 1

Are You Psychologically Suited to Trading?

I’m going to ask some questions, and you need to answer them with
complete honesty. Don’t try to bluff yourself. Many people are not able to
examine themselves objectively. For them, this is a useless test.

“Scared Money” Test
When Tradenet was still very young, a man in his late twenties phoned

and introduced himself as David. He was married, had a young child and
had prepared all his homework, gone through the Tradenet site inside out
and backwards, read all the study material, watched the video clips, and
concluded that his future lay in stock trading. In our conversation, David
sounded very decisive and determined to succeed.

He had managed to save some $15,000, which he was designating as his
initial trading capital. David requested to join the next course of studies.
But he failed the “Scared Money” test. David was fundamentally unsuited
to intraday trading.

The “Scared Money” test states that you must solidly believe that
even if you lose all the funds you designated for trading, the loss will not
significantly impact your economic and mental state. The term “significant
impact” is, of course, subjective, but in general I can say that if the loss
means you must forego your annual vacation or will be unable to take your
car to the garage for urgent repairs, then you have not passed the test.

David was about to trade with “scared money.” He would absolutely
have to profit in order to pay his rent and support his wife and child, and
therefore his chances of success were small. If David would have had
an additional source of income, or far more significant savings to cover
his expenses while he learned how to trade, I would have evaluated his
chances of success as high.

When you trade with “scared money,” you are not psychologically free to
function well. Success as a trader derives chiefly from your psychological
capabilities. If you are about to risk all your savings, or worse, borrow
money from the bank for trading, your fate is sealed in advance. True, I
have met a rare few who started out with small sums that just grew and
grew, but they are the extremely exceptional Cinderella cases and not the
majority of us who are fated to live in the world of reality. And in reality,
there are no shortcuts. Stock trading can be an enjoyable, challenging
activity, and I fully recommend as you start out that you relate to it like
learning a hobby. As with any hobby, invest only money that you can afford