The Importance of Preserving Mental Capital

Most trading and money management professionals are acutely aware of the importance of protecting and preserving our hard-earned financial capital. However, even seasoned traders and investors neglect the equally important preservation of mental capital.

If you find yourself asking, “what exactly is mental capital?” you are not alone. Even many professionals are unfamiliar with the concept and fail to account for their mental capital while working with the market.

In the game of trading, mental capital refers to the ability to remain calm, clear, focused, and in control of your cognitive and emotional resources. All too often, traders mistakenly overlook the availability of this resource in formulating their overall approach to the market and risk management process.

I highly recommend Jared Tendler’s book, “The Mental Game of Trading” which is loaded with key insights into the emotional side of mental capital. Also, in order to learn a full Trading Psychology System, you can attend our Masterclass with Jared Tendler.

Regardless of how you choose to approach the market, the preservation of mental capital will always play a critical role in managing risk, and hence, in determining your success.

There are many ways to go about managing your mental/emotional well-being. How this is done will look different for each of us depending on our personal lifestyles, approaches to managing money, and so on.

I stick pretty closely to the CANSLIM methodology, which involves timing the market. Therefore, there are periods of time when I am completely out of the market and 100% in cash for extended periods of time.

During those times, I make sure to spend my time completely focused on relaxing, regenerating, and experiencing all of the other important things in my life. That way, when my trading rules require me to be back in the market again, I feel refreshed and ready to go.

There is no one correct way to build your mental capital, the idea is to find the best way to do this according to you. Just so long as the preservation of mental capital is accounted for, and properly integrated into your individual money management approach and personal lifestyle, you are in good shape.

Pursuing mental and emotional balance leads to less stress and frustration in general, which allows us to give proper attention to all aspects of our lives. That means better performance in the stock market and greater well-being in your personal life which is the best prize of all.

Taking stock of your immediate emotional and mental potential can lead to better relationships, improved physical health, a strong sense of motivation, and more energy to invest into parts of life that are important to you.

I think it’s fair to say that preserving mental capital is a key part of trading success and satisfaction in your life. Remember, we trade for a living. We do not live to trade. Balance is key.