there is an aspect of trading that tends to go unnoticed amongst most traders, and it’s something that could be slowly destroying your trading account (in all honesty, it probably already is). As traders, we are dealing with numbers on a computer screen; digital representations of our cold, hard cash. As a consequence, we often forget about the impact of not actually touching, feeling, smelling or seeing the money that we win or lose on a trade. The impact of having no physical interaction with the money in your trading account as you win or lose on trades, is very real and very significant…

The primary issue with never touching, smelling or seeing the money you lose or win on any given trade, is that you become desensitized to the true, real-world significance of it all.

Physical money vs. Digital money

Let me ask you this…which of the following two scenarios would make you angrier (amongst other emotions)?

1) You are at the ATM machine and you just withdrew $500 from your bank account for a night out on the town when someone runs up on you unexpectedly, knocks you over and takes the $500 from you and then runs off.

2) You are sitting at your computer, in your own home, in your underwear drinking a beer and your stop loss just got hit on the EURUSD short trade you entered two days ago, also resulting in a $500 loss.

I’m willing to bet that you answered “scenario 1” would make you angrier than scenario 2. Yet, the same amount of money was lost in both situations, so why the different reactions? In scenario 1, the money is much more “real”, it was in your hands, and you touched it and maybe even smelled it; you had a physical connection with it. In scenario 2, you simply saw a digital representation of your money decrease by $500, but you felt no actual physical loss of that money.

I know what you might be thinking right now, you might be thinking something like “I do feel the money when I lose or win on a trade Nial, I don’t need to hold the money in my hands to feel the impact”. I know it’s easy to think this, because I thought it before too, but the truth of the matter is that one of the big reasons people tend to lose money in the market is because of the whole “out of sight, out of mind” aspect of it. When you lose money on a trade it has much less impact than losing the same amount of money to a thief at an ATM machine, and when you win money on a trade it also seems much less important to you than if you found a pile of actual cash while walking through the park….even if the amounts were all equal.