“Scared money don’t make money” is a popular term for the hip-hop community and for the people of the financial and investment sector. What could the inner level meaning of this word be, as you might guess? Let’s not make things any more confusing. People who are hesitant to take chances in business, life, and the financial markets are unlikely to generate money because the rewards are generated only from the risk. Your capital will not be repaid if you do not put it at risk.
Even if a person wishes to invest or swap money, they may be concerned about losing it. To have a chance to earn money, one should be able to risk money based on one’s faith in one’s skills.
What makes trading so scary?
Neurofinance says that the trading activities activate the primitive area of the brain that is responsible for our self-survival and defense. The defensive layers of the brain do not respond to self-talk or willpower. Any attempts to shut off those defensive layers are met with resistance by your brain.
It’s quite difficult to manage inclinations like these, which can ultimately damage a trader’s trading performance. Although these instincts are an inevitable part of survival, when they take control of your mental process, you may react in a way that undermines what your consciousness wants you to do. It may appear like you are sabotaging yourself, but this is not the case.
Why do scared money don’t make money?
Fear is a natural feeling, and being scared of failure is quite common. You become super paranoid and hesitant as a result of your concern, and you avoid taking any risks. You will eventually run out of money.
Here are a few of the most common reasons why people who are afraid of money don’t make money:
If the market is in a serious decline, you may be cautious about buying, but you may also be unwilling to sell, as your instincts may warn you that the train has already left the station. As a result, you miss out on an opportunity to sell during a downturn, as well as a chance to buy at the bottom when prices are too low and below fair value. It’s not bad to worry about risk, but thinking about it too much makes you a hesitant trader, and money doesn’t come from inaction.
Trading takes a lot of confidence, and you shouldn’t trade with money you can’t afford to lose if you want to develop it. If you do so, you will continually be second-guessing yourself. Even your high-probability trade setups will become skeptical. Suddenly, your profit targets will be trimmed short, and your stop loss may have to extend.
As you become more concerned about losing money than about your trading strategies and plans, you start feeling as if your confidence has been destroyed. Although it is true that a trader’s first responsibility is to defend his or her capital, this does not mean that you should be frozen by fear of loss in every trade.
Shortening Winning Trades
In the forex industry, it’s cliche to allow your winning trades to run and cut short your losses of other trades. Most traders do the exact opposite. Without a doubt, this is a key factor in your trading success. The actual success in trading is pyramiding, which is only achievable when you let your winnings run.
When the trader trades with scared money, they see profit as profit and do not allow the market to maximize earning potential. Instead of trying to conduct an unbiased analysis to maximize profit, traders with scared money begin making decisions about their open positions based on the risk of losing the unrealized profit.
The result of such a fear-driven decision is that your winners will be cut short. It just reduces the value of your 3R trade to 1R which means that in order to stay successful, you must consistently win trades. However, because of the range bound market, it is important to stop positions that are not worth holding, but scared money drives you to do so.
Letting losers run
“HOPE” is a terrific term in trading, and in the forex market it has no place because if you keep hoping for a positive result, you are enabling fear and greed to control your trading.
The traders who trade with scared money sometimes have this issue of hoping that their plan would work and which apparently leads to letting the losers run. You keep hoping that the market will come back to your favor instead of cutting your losses when you find an inaccurate situation. The damage has already been done by the time you decide to cut your losses.
Fear, that comes from the primitive part of the brain, is the primary cause of most traders’ failure. Such an emotion prevents the brain from acting in accordance with consciousness. As a result, traders become too cautious and avoid taking risks with their money. Traders lose money as a result of such inaction. Traders that are afraid of losing their money close winning trades too soon. They do not cut their losses short because they are terrified of accepting the losses.