Trading is a mental game.
If you want to excel in this endeavour, your mindset must be at peak performance.
But if you borrow money to trade, you erode whatever edge that you might have.
Here’s why…
Trading with borrowed money = Money you can’t afford to lose.
And when you trade with money you can’t afford to lose, you make poor trading decisions because you have the “I can’t afford to lose” mentality.
So, what do you do?
- You shift your stop loss because you don’t want to take a loss
- You take tiny profits because you’re afraid of watching them turn to losers
- You average into your losers hoping to catch the bounce and recover your losses
Eventually, your poor decisions catch up with you and you lose everything (including the money you borrowed).
Now you’re worst off than before because not only are you broke — you’re also in debt.
Do you want this to happen to you?
Then, don’t borrow money to trade.
Repeat after me…
I’ll never borrow money to trade!
I would buy a Rolex IPO on day 1. Pretty sure it would be undervalued even at a seemingly high multiple.
Close to zero chance of it happening though. Back to public market investing.
If you lose 10%, you need 11% to break even.
If you lose 20%, you need 25% to break even.
If you lose 30%, you need 43% to break even.
If you lose 40%, you need 67% to break even.
If you lose 50%, you need 100% to break even.
Always have a plan for your trades and investments.