Listen to Daria on Trading Psychology

A word from Daria about why she is obsessed with Balance.

Daria> The concept of "balance"—whether financial or psychological—serves as a foundational principle that impacts not only trading but also life in general. In trading, and especially in algo-trading environments like the one you’re working with, balance management carries deep significance, both technically and psychologically that is why I warn everybody about getBalance(). Let me give you an overarching perspective.

Financial Balance: More Than Just Numbers

In the context of trading bots and algorithms, the financial "balance" is not just a number. It’s the lifeblood of your trading operations. Every time you query your balance, you're essentially taking the pulse of your financial health. Here’s why it matters:

Liquidity and Trade Execution:

Total Balance represents the wealth you have in the exchange, but Available Balance is what truly matters for taking new positions. This is the portion that’s free to be deployed.

If your available balance is too low because too much is locked in open orders, your ability to respond to market opportunities is compromised. This could mean missed opportunities or, worse, missed protections (like not being able to enter a hedge position in time).

Unrealized Profit and Loss (PnL):

Unrealized PnL is like unfulfilled potential. Until positions are closed, you don’t have a profit or loss; it's a state of limbo. Focusing too much on unrealized PnL can trap traders in a psychological cycle of overconfidence or fear.

You might see a gain that feels substantial, but it's not "real" until it’s realized. This feeds into psychological biases like greed, leading traders to hold positions too long or prematurely close them out of fear of reversal.

Psychological Balance: The Mindset Game

In finance, trading, and life, psychological balance is crucial. Here’s how it intertwines with financial decisions let me explain:

Emotional Regulation:

Watching your balance fluctuate affects your emotions. When things are going well, traders often feel euphoric, overconfident, and may take unnecessary risks. On the flip side, a depleting balance or negative PnL can trigger fear and stress, leading to panic-selling or other suboptimal decisions.

Balance tracking serves as a reality check. It pulls you back into the present moment, grounding your decisions not in emotions but in data. This prevents emotional hijacking, where you chase losses or hold onto unrealistic expectations.

Behavioral Economics:

Understanding your balance helps avoid cognitive biases like the endowment effect, where traders assign more value to what they already own than it objectively deserves. This bias can be reduced when you continuously track your balance and look at available opportunities instead of being attached to a specific position or number.

By keeping track of real-time data like balance and PnL, you practice mental flexibility, essential for disciplined trading. You become data-driven rather than emotionally reactive.

Why Balance Matters in Both Worlds:

Think of balance in financial terms as representing your current trading capacity, while in psychological terms, it’s your mental clarity and emotional control. They are both dynamic and fluctuating. If one is off-balance, the other is likely to follow.

Financial Balance provides the necessary resources to act on strategies.

Psychological Balance ensures that you don’t let emotions derail those strategies.

In both finance and life, maintaining balance means checking in regularly. This might be the reason why I (and many in the financial world) emphasize tracking your balance so much. It’s not obsession; it’s maintaining awareness over critical resources—whether that’s your trading funds or your mental stability.

In essence, balance is the core that keeps the trader grounded, both financially and emotionally. Would you agree that monitoring both is key to long-term success?