Dealing With Trading Losses: Account Equity

The way that you view your account equity is important. For example: John opens a $10,000 account. He loses $1,000 in a week, and now has an account balance of $9,000. At this point, what's probably running through John's mind is that he's now "behind" - he has "lost money" and won't have "made money" until his account is above $10,000.

I see this scenario play out all the time and it usually results in blown up accounts. If you ever try to "make money back" you are headed for disaster. Trading is a process - having profits or losses is the result of that process. When you focus on the result and not on the process then your performance will suffer. (and thus your result.) 

When John is trading a $10,000 account and he loses $1,000, he should instead think: ok, my equity is $9,000. I don't care what it was before then, $9,000 is what I'm working with right now.


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