Jared F. Martinez (The FX Chief ™) is an author, currency mentor, educator, market analyst and entrepreneur, as well as the founder of the Market Traders Institute, Inc. (MTI).
Quantifying emotional stop losses is equally (if not more important) than making real financial stop orders. Emotional losses can carry more weight and can create more long-term emotional scars than actual financial loss.
Any type of business involves risks and trading in the markets is no different. Successful trading involves quantifying the amount of emotional heartache, abuse, or grief you are willing to take if things don’t work out. It draws a line of tolerance in the sand, which allows us to manage the levels of emotional and financial risk that accompany the perceived investment.
When we see ourselves on the blind side or incur a life-altering blow and fail to protect ourselves properly, our financial life, and even our quality of life, can be damaged for years. The toll may be higher than we had ever anticipated. It can affect our attitude, ego, emotions, financial security, marriage and even our destiny. One thing is for sure, it will create an emotional scar that can take years to recover.
I think when people take the time to think before they act, they take the first step to protect themselves. Turning the following four simple steps into daily habits can forever change your personal, financial, emotional, and business life. These habits can help teach you how to protect yourself with everything you do before you get involved. And the next four steps can even help you avoid years of mourning.
Four easy steps to protect yourself as a trader
1. Look at what you have and ask yourself, “How can I protect what I have from any loss or retain as much as I can if that opportunity doesn’t work?”
The first question when investing should always be, “How can I preserve my initial investment if things go against me?” The first question when entering into any relationship should always be, “How can I preserve my existing relationship with this person if things start to get emotional?” Believe it or not, the setbacks of emotional and personal relationships are often superior to economic ones.
2. Before you get involved, think about the worst situation that could arise if things don’t go as planned.
Don’t be optimistic and expect the best from the best. It seems like we all naturally know how to act when all is well. It is when we have to work the worst that can happen that we have to think things through and be very clear about what we are going to do. Just as every building must have a fire exit, we need disaster plans in our lives to protect ourselves.
3. Create a plan that defines the terms and conditions of the opportunity. If you don’t plan, you plan to fail.
All success is preceded by the execution of a well-thought-out logical and solid plan. When making your plan, use the “if. pass, I will, “and so on.
Life is a game of chess with incredible variables, and trade has the same. You need to be prepared for the unexpected surprises of life. If you are prepared for the unexpected, there will be no unexpected surprises, just a continuation of your plan.
4. Demonstrate that your plan makes logical and financial sense and is best for you and your loved ones.
Take a step back and ask yourself why you get involved. There are millions of opportunities in life and double when it comes time to negotiate. When you learn how to create a business plan and follow it, you have more chances of success and you really enjoy what you are doing. Your plans should be based on logic and not on emotions.
It won’t protect you if you take advantage of an opportunity without creating a solid plan with timelines, milestones, and stop losses along the way. Know when to leave when it is time to leave. You can’t afford to stay in the building when it’s burning to the ground.
When you start implementing these four steps and allow them to be a part of your daily life and habits, they will save you incredible money and / or years of mourning in many areas of your life. And, when applied to Forex trading, adopting habits could pay huge dividends. So remember to protect yourself at all times and never risk more than you can afford to lose.