What Is “Psychological Capital” And Why Do You Need To Build Yours?

In trading, I believe there is such a thing called “psychological capital” that you need to build in addition to your educational investment and actual monetary balance.

Think about it for a second.

Whenever forex traders decide to quit and give up, it is not usually their money that has run out. What has really happened is that they have exhausted their psychological capital, preventing them from moving on.

More than the money you put in your account, you also invest your mind in trading. As such, you must grow your psychological capital just as you would your initial money capital.

But to clear up any confusion, let’s first define exactly what psychological capital is.

The amount of psychological capital a trader has represents his ability to withstand the psychological effects that come with being a trader. It dictates how he’ll react when he is losing or winning and what negative effects it will have on him.

It’s important to remember that, if we’re not careful, poor trading can also exhaust our psychological capital.

Notice that I’m not singling out the word “losing” at all. This is because both winning AND losing can have a detrimental effect on psychological capital.

A forex trader, for example, can damage his psychological capital if he becomes too arrogant after he wins and looks past simple but important details like setting proper stops in his future trades.

On the other hand, a trader who is experiencing a drawdown can lose psychological capital too when he becomes too depressed and refuses to look back at his trades and learn from them.

As a trader, it’s your job to not only increase your trading capital, but your psychological capital as well. Moreover, you must learn how to grow your psychological capital both through losing and winning.

When you are losing, you can strive to treat each trade individually and not let it affect the next trade, even if you’re on a massive losing streak.

When you are winning, it’s important to look at each trade and see what the reasons why you won were. You may learn more about yourself and which forex trading system suits you best.

The importance of growing psychological capital is probably even more important than increasing your account balance when talking about long-term trading success.

Psychological capital is what will enable you to stay in the trading scene and endure all the ups and downs of forex trading.