Psychological Capital (by phantomcapital)

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Traders have two types of capital at their disposal each
day; financial capital and psychological capital.  Financial capital is obvious, it’s the cash
we have to trade with.  Psychological capital
is harder to measure; it’s the energy and zeal we approach each day with.  However, both are limited in supply no matter
how energetic the trader is. 

So why is psychological capital a relevant topic to ponder
for the trader?  Simply, as a trader, we
do not work a salaried or hourly job. 
Hours worked do not directly translate into the amount of money we make.
 Often the biggest paydays happen in the
matter of hours or a few short days.  The
key here, and this is important, is to have the mental energy to be ready to
capture the big moves in the market instead of being worn down by the inconsequential
grind of a flat market. 

The point is simple, trade when others are trading and have
the good sense to preserve psychological capital and energy when there clearly
is no interest in the market.  There is
nothing worse than missing a huge move because of a total lack of psychological
capital after a period of grind. 
Specifically I’m speaking about the past month of August and the first
part of September.

SPY Daily Chart

Look at the volume. 
Can you see it?  No?  Exactly, because there is no volume.  A market is simply a reflection of the participants’
view of price.  However, if there are no
participants, price action (if there is any) makes no sense.  Trades that normally work 80% of the time no
longer work because there are no traders actively taking the same trade.  Breakouts and failures no longer work because
the market is a bowl of volumeless mush. 
So instead of draining psychological capital, relax, do something else,
and prepare for the next rock and roll period of trading. 

$SPX Five Minute

Specifically, I’m shut down this week until AFTER Fed Thursday.  Volume has been dismal, no one is willing to
make a major move into both the German
Court decision and the FOMC meeting.  So why trade for pennies when volume will
come back after these two huge roadblocks and we will be trading for
dollars?  Preserve psychological capital
when there clearly is nothing to be done. 
With a full tank of energy you can then rip the throat out of the market
when the time is right and the volume is back.