I would think that life is more important than money.

Gregory McLeod

Therein is where the error is when we believe that money is more important than life. We can always make money, we only have one life.

How we value money speaks volumes about us as people and traders. I wrote this a while back in the Active Trader Strategy Lab. It may help to repeat it here:

Transitioning Demo Trading Success Into Real Trading Success- Many people who trade a demo account successfully often find that this success does not follow in their real account trading. They seem to be doing the same types of things that helped them to make demo profits, However, a consistently rising equity curve remains elusive. Some can trade a demo well because there is no pain in using money that is not real. For many people money means a lot of different things. Money can mean safety, security, self-esteem, the result of hard work, etc. These thoughts that are attached to money are carried into trading. So traders are not just losing money when they are stopped out; they are also losing safety, security, self esteem, or the results of their work disappearing. Who would want to exchange these intangibles for just money?

Losses are always part of trading. However, most people are trained to avoid pain and losses of safety, security, and self esteem. This mechanism keeps people from taking a loss when they have to or taking profits too soon because of fear of losing what they made trading. Taking profits early and not taking loss are the two ingredients of a losing trader.

To combat this, we have to disassociate what we feel that money is and what it can do for us from money. We must look at money like a furniture maker looks at wood or a potter looks at clay. Money is a commodity, a raw material used in a process of trading. A wood worker will have a lot of shavings and wasted wood left over in making a beautiful piece of furniture. He is not concerned by the pieces of wood that fall to the floor. The craftsman could also ruin his work in the process and would have to start over. This is how a trader must look at losses.

It is simple concept, but not easy to put into regular practice.

When a trader is free from attachments to money and what it represents, he/she can make better decisions and stick with discipline while bypassing emotions that could jeopardize good trading. They are able to put money into its proper context; a raw material used for making more money.
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Gregory McLeod moderates the Active Trader Strategy Lab a thread for short-term traders.
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