There is an old saying that many of us remember, “scared money makes no money.” This statement is true, but very few people will truly understand it. There are many traders that want to live the dream and trade full time. However, almost everyone is guilty of one thing in the start of their trading career; being undercapitalized. Usually, when you begin trading you are filled with a dream of making millions of dollars in a few months, but this is not reality. The trading business is tough and it requires study, learning and of course money.
In order to be a trader you must put money on the line if you expect to make a profit. If you are undercapitalized it puts a lot of unnecessary stress on the trader. After all, trading can be stressful enough, especially when you are a novice or new to the trading business. When a trader is undercapitalized he cannot weather a drawdown or a loss. He will need to succeed in just about every trade. That is not practical for any trader, everyone will be wrong from time to time. I see this occur very often with traders that have small futures accounts. These accounts are often very levered and have loss limits in place. It is very rare to see a small retail futures trader survive even a year in the business. Unfortunately, they will usually have to bow out of the business because they are undercapitalized.
There is a few ways to succeed in this business when you don’t have a lot of capital to trade with. Let’s take a quick look at them…
First, you can trade with small share or contract size. This will not make you a lot of money, but while you are learning it can help you remain solvent and still be in the game. As you get more knowledge in trading you can slowly increase the shares or contracts. There is nothing wrong with starting small. In fact, most businesses have to start the same way. It is important to remember, trading is a business and it must be treated like a business. Start small, control your emotions and learn to build a successful strategy while you grow your account. If you go big in the beginning, you will surely end up as another statistic of the markets.
Next, you might need a side job to help bring in some money until you really learn what the trading business is all about. Recently, I just received an email from someone who bought Tesla stock at $900 a share and now he is underwater in the stock. Obviously, he was not very educated in chart patterns, but he had enough money to buy shares in a bloated and parabolic stock. If he had been an educated trader he would never have bought shares in Tesla at $900.00 as the chart is not favorable at that stage of the game. So we must continue to study and get educated in trading, it is vital to your success. Learn all you can about chart patterns, bull and bear markets and what really drives price action. This will take time, but this business is a marathon and not a sprint. The bottom line, scared money does not make money.
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