Recently I was contacted by two former coaching students, who both wanted to discuss the same issue: a sort of “fear of heights”. After a decent run-up in their equity curve, they started to feel dizzy and fearful of “giving it back”.
In particular, one trader has quadrupled his account balance over the past 8 months and is afraid that after doing so well, he might hit a drawdown and not meet the requirements to be funded and/or offer copytrading through FXRenew.
Here is my recipe in the event that you too start to accuse a “fear of heights”!
It’s Not About the Money
My first response to any trader that says “I’ve done so well up…what do I do now?” is:
keep it up and don’t look back.
I’ve said it many times before, but looking at your equity curve is simply another way of focusing on the money. Especially when you have a small account balance, you need to really focus on the process that has allowed you to achieve certain results because whether you want to offer copytrading services or receive funding, the focus is always on protecting the downside.
- It’s never about how much you made.
- It’s about how much you risked, in order to achieve that result.
- It’s about how you dealt with drawdowns.
- It’s about how you refrain from overtrading and/or revenge trading.
We Care about Longevity
If I were to ask you: what does it mean to Win, as a trader?
My reply would be: staying in business.
Look at one of the best trend-followers in the business: Dunn Capital. How many times did Dunn create a new equity peak since inception? How can a firm like Dunn not have any “fear of giving it back”?
Source: https://www.trendfollowing.com/performance/
The key here, and I don’t mean this in a critical way, is that if you are still thinking about profits, multiple-R winners, how good your equity curve looks, etc…then your mindset is completely wrong.
If you were a baker, your business would be to produce good bread, pizza, muffins, scones and sell as much as possible each day. If you have a great day, a great week or a great month, it’s definitely a good sign but does it mean that much in the context of your entire career?
Furthermore, does it help to actually focus on how good you have done up until now?
In the same way, if you are a trader then your business is to manage money (yours or others’) well, day after day, week after week, month after month. There is no “finish line”. There is no “game over”. This is your job, so it doesn’t really matter how far you’ve come since you started. All your investors care about is whether you will be able to survive and do equally well going forward.
It’s the same for any business: the going concern. In essence, the going concern means that there is no threat of liquidation/insolvency (or blowing up your account) for the foreseeable future.
What Got You Here Won’t Get You There
I took this phrase from a book of a well known business coach, Marshall Goldsmith. However, I’m using the phrase to mean something different.
Anytime you look at your equity curve, you’re effectively looking into the past. Your curve represents the work you did that got you here, today. However, past results are no guarantee of future results!
As we wrote previously, your last trade doesn’t mean much, if you have a good process.
Over to You
Long story short: you must focus on the process and the going concern for your trading business. The only way to have confidence and not to “blow up” your account is to have a sturdy trading strategy with clear risk limits. If you have created a nice equity curve over the course of 8-12 months, the chances are you are doing something right! You have an edge, so make sure you know exactly what that edge is, and continue to work your edge day after day.
Many market wizards speak about the markets as an elaborate game. As such, the only way to survive is thus:
- learn the rules of the game
- learn how to play the game
- keep trying to improve your edge.
About the Author
Justin is a Forex trader and Coach. He is co-owner of www.fxrenew.com, a provider of Forex signals and Education from ex-bank and hedge fund traders (get a free trial), or get FREE access to the Advanced Forex Course for Smart Traders. If you like his writing you can subscribe to the newsletter for free.