Protecting Your Mental Capital
In 99% of the cases, when hearing about ‘protecting your capital’, what’s being discussed is your financial capital, or money in the account. But when do you hear about protecting your mental capital?
Unfortunately there is very little discussion about protecting your mental capital. And yet, it can often be more important than protecting your actual capital (i.e. money).
What is Mental Capital?
Your mental capital is very much like an account balance reflecting the strength (or weakness) in your self-image and trading mindset. A good example is confidence, or lack thereof. Some other ingredients which affect/are part of your mental capital are;
Beliefs (positive, limiting or negative)
Awareness (both self, and in the moment)
Beating oneself up
Negative or Positive Language
Your mental capital is something (just like your risk capital) that has to be protected and built up brick by brick. However, there are no mathematical formulas to help you with this. The two things that affect your mental capital the most are 1) You and 2) Your environment.
Ways to Protect Your Mental Capital
There are many ways to protect your mental capital, of which, I’ll share a few simple techniques here;
1) When in a trading slump, go for smaller, more achievable goals
We’ve all gone through losing periods, but the longer they go, the more potential they have to affect our mindset. Sometimes you just need to get a few winners to build your confidence back. If getting 2R on a trade just seems out of reach, try going for 1.5R, or 1R. Just nailing a few wins can do magic for your confidence and beliefs. Its an external confirmation to your mindset you can make good trades. When this belief comes back, you start to find yourself making better trades.
2) Avoid beating yourself up
This takes awareness in the moment, so anytime you catch yourself doing this, you have to stop the negative self-talk. Instead, think about things you do really well. Think about something which you’ve overcome in your life. By recognizing your strengths, you start to engage them more, while replacing the negative self-talk. It’s a more constructive thought process to engage in and helps to strengthen your trading mindset.
3) Take on less
Maybe you are trading 3-4 systems across several time frames and instruments. If you cannot perform consistently at this level, reduce what you take on. Trade less systems, instruments and time frames. Try doing a few things, or even just one system really well. When you start to perform well with that one system, winning more trades and making money, you start to create a positive belief you can do this. This leads to a confidence which you can then use taking on just a bit more, very much like lifting weights.
These are just three simple ways to protect your mental capital, and there are many more developed methods, techniques and ways to do this. One example is ERT training, which helps to re-wire your brain and remove those limiting beliefs.
Not protecting your mental capital will only lead to negative emotions, beliefs and habits. But protecting your mental capital will help you build constructive and positive trading habits that ultimately lead to better trades. There is nothing more powerful than someone who believes in themselves. All great performers have this. Your goal should be to become that person.
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