Today, we’re talking about the first common reasons one might be stressing in their trade:
1. You may have too much size on.
How do you know you are oversized in a trade? If you’re sweating or can’t think straight while in a trade, you are probably oversized.
Being oversized in a trade triggers our “fear response”. That is, you trigger your amygdala to sense danger because you are now in a situation where you’re afraid to lose money. (We learned about the amygdala in our last session.)
We’ll have a focused conversation around “fear of loss” in another session. For today, let’s resolve this issue of oversizing.
If you have more money than your “fight or flight response” can handle, exit the trade now. Then, on your next trade, reduce your size to a level that doesn’t have you sweating.
X recommends that we never have more than 10% of our account in a single trade. He also says that 5-7% of our entire account in a single trade is a more appropriate trade size.
However, if you are new, I suggest trading 1-2 contracts max for the first year of your trading. That’s what I did, even though I have an account size that could accommodate a much larger position size. I never let myself trade more than $200-500 per trade until I had enough PROOF (for me, that means 30+ consecutive green days) that I was capable of being a consistently profitable trader.
Experienced traders recommend starting small like this because during your first 1-2 years, we experience a great many failed trades while we are learning. There is no need to risk one’s capital while we are learning. If one runs out of money because they oversized in the first 1-2 year of trading, then one’s career is over before it even began.
Have the discipline and humility to trade small in your first 1-2 years of trading. Earn the right to scale up based on your performance, not based on “how much you want to make.”
*This post is not financial advice, nor is it mental health advice. Please seek a financial and/or mental health professional where appropriate. For educational purposes only.