Trading Educators Blog
Initial Capital vs Earned Capital
Traders are always more concerned about protecting their initial capital, rather than gains beyond that amount. In fact, traders become careless with gains beyond the amount of their initial capitalization. For some strange reason, traders do not treat newly earned capital in the same way as initial capital. Of course, this is the height of foolishness. There is no difference between initial capital and newly won capital. Capital is capital and should be treated with respect. Traders seem to feel that new capital belongs to someone else. They feel as though they were trading with someone else's money, and so they treat it carelessly. But capital earned by way of trading in the markets is not someone else's money, it is your money. Once added to the capital base it should be treated as something precious. You want to be paid to trade, winnings are your payment for taking risk.
Fear is stronger than greed because it implies the loss of initial capital, and greed implies gain beyond initial capital. This may be why markets fall faster than they rise. The Dow has fallen over 508 points in one day but has only risen slightly above 200 points in one day. On the other hand, falling faster than rising, does not seem to be true of the currency markets. The reason seems to be because currencies are not absolute in the same sense as other markets. Since Richard Nixon took the US off the gold standard, currencies trade relative to one another. If the dollar index, a basket of currencies closely resembling the composition of the euro, is up, then a currency such as the euro will tend to be down by a similar amount.
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