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profits you have achieved is much more significant for your overall success.
Rather than spend a lot of time on the basics of wealth accumulation, I am going to assume that your intention with this book is to get a better edge for your trading. Part of that edge is creating trading rules that will work for you. If you look closely at the underlying psychology behind win- ning trading rules, there is a subtle, implied consciousness that they all seem to point to. That consciousness is nonattachment. All winning traders have as part of their market presence or daily discipline an awak- ened knowledge that pretty much anything can happen at any moment. If that results in an adverse move to their market position, they will ruth- lessly liquidate. If something unexpected happens that pushes a trade fur- ther in profits, they might aggressively add to the position. When a trade is not performing as anticipated, they will liquidate or lighten up. Basically, most winning traders are not attachedto any particular result, price area, profit/loss ratio, or even any one market. Winning traders know that any- thing can and does happen, and that if they have any kind of internal com- mitment to any part of the trading experience they have a higher probability of losing money. That nonattachment extends to their account balance, and this is why regular withdrawals from your account are a very healthy thing for your trading.
This rule is about maintaining a strong market presence. A strong market presence should be thought of as a whole picture. There are a lot of things that can affect trading, and many of those things are not directly related to the markets themselves. For example, if you have a conflict with your spouse and your emotions are in turmoil, it is very likely that you would incur a loss if you initiated a new position. Something from the outside world is pressing in on your inner world. Stop and think about how people you know have made poor choices when they have been sub- ject to something that upset them. Trading is no different. To maintain a strong market presence you must reduce or eliminate outside pressures, as they might disrupt your thinking or emotions. Included in that picture is the issue of what to do with money earned from trading.
Obviously, you need to be a net winning trader to follow this rule. If you aren’t a net winning trader at this point, it is still a good idea to con- sider removing money from your account from time to time. Money is a vi- tal and necessary part of our day-to-day lives, and as such, it should be moved around occasionally as our world changes. The surest way to go broke is to put your money in one place and leave it there forever. Money needs to be used to be valuable. Opportunities change, people change, things that were great investments in the past are no longer good today;
money works hardest for you when you are moving it around to take ad- vantage of the changes around you.
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If you take the point of view that most winning traders do, you will find your trading improves when your trading plan includes withdrawing funds on a regular basis. You really don’t need a huge chunk of money in your trading account to exploit market inequalities. Most of us can focus on only so many markets at one time anyway, so having gains pile up and just sit there is pointless. I know that many traders take the point of view that more cash in their account means they can trade larger. You might be sur- prised to learn that most long-term successful traders don’t load up. Most successful traders are very careful about increasing their base trading size.
Instead, when their account balance reaches a certain number, they simply withdraw their gains. Most do it as a measure of self-protection; they worked very hard for those gains and don’t want to risk giving it back.
These traders also know, usually from past experience, that increas- ing their trade size has resulted in a larger ebb and flow to their balance.
Many simply can’t emotionally negotiate that big of a changing balance day-to-day. These traders are content to trade a certain size and do it very well. Withdrawing money regularly prevents the temptation to change something that is obviously working for them.
Additionally, what are we doing this for, anyway? Isn’t the whole point of trading to get rich? I know it is for me. I think whatever trading repre- sents for you personally, somewhere in that point of view is the issue of what to do with the money. Many traders make the mistake of having no real financial goal to work toward. Goal setting is an important method to monitor actual progress on improving your personal financial position.
Assuming you have some financial goals you are working toward, don’t make the mistake of thinking you will attain them all at once when your trading balance reaches a certain point. It is wiser to break those goals down into mileposts and make a contribution toward them on a regular basis as your trading account grows.
For example, I have a friend who withdraws a certain amount of his gains every quarter and puts them in bank certificates of deposit. He doesn’t care about the interest that is paid; he does this so that he can’t get his hands on the money easily or lose it quickly from overtrading (which he has a tendency to do). He lives in a modest apartment and he is looking to put 50% down on a condominium. This particular trader has blown out more than once, and his rules now include, “Once I have a certain gain, it goes in the bank toward owning a home.” When this trader withdraws money, he is validating his sense of purpose and progress. He feels good about working toward financial independence and security as he defines it. He is happier and more focused, which leads to a better market pres- ence. Better market presence, better trade results—they go hand in hand.
Withdrawing money and putting it somewhere is only part of the story. I think you will maintain a much better market focus if you also take
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a portion of your gains and do something that is personally very reward- ing for you. When we as traders have invested a year of our lives and maintained a sharp edge during that time, sacrificed things to make a nice profit over time, we owe it to ourselves to reward ourselves in some way that is deeply satisfying. There is a very powerful sense of satisfaction that comes when we stop to enjoy the fruits of our labors and invest in our per- sonal happiness. I don’t think it really matters what form this takes, just that we do it for ourselves regularly.
I think this needs to be done no matter what level you are at in your trader development. If you are trading a $2,000 balance and earn a $500 gain during the quarter, I think you should take $100 and buy yourself din- ner or something. I think it is crucial for us as traders to invest back into ourselves when we are achieving the success we have; God knows we have earned it. Trading can be a brutal experience, and when we are on the winning side, we should enjoy that success a bit. Of course, it should go without saying that spending every dollar earned from the markets is not a good idea. You need to find a balance between enjoying your success and saving.
In the final analysis, the rule “Withdraw equity regularly” is about the process of non-attachment to the markets. It is a daily battle for many of us to hold rather loosely to our trades and their results. When you hold loosely to your account balance as well, I think you are completing the big picture of what the markets ultimately mean to you personally. How you choose to define financial freedomis up to you. For me, just knowing that I have complete control of my finances and I don’t answer to anyone is a huge part of it. I really don’t care anymore about material things like I used to. I take money from my accounts regularly and make secure invest- ments, I support a few charities, and I enjoy a lot of fun stuff. To me that is freedom. I don’t think I could maintain that sense of freedom or daily bal- ance if I had a huge cash balance in my trading accounts going back to the day I started. What good does that do?
Your trading results when they are cash credits must mean something to you personally. Take that cash and use it; move it around and increase your opportunity base. Make a few long-term secure investments, buy a vacation home, take your spouse to Europe for a month; do something positive with those gains and you will be a sharper trader for it.
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