Topic Progress:

The concept of “paper” profits and losses is not just wrongheaded, it’s an absolute disaster in the making. If you’ve conducted a few trades before coming to this course, you may have been guilty of this type of thinking yourself. The “logic” goes like this:

If you make a couple of successful trades and generate a profit, that’s “free” money, since it’s money above and beyond what you started with, which makes it “house money,” as opposed to “real money.”

The problem with this kind of thinking is that it causes you to become more reckless with the money you earn than you are with money you started with, and that’s no good because it runs counter to your goal, which should be to grow your equity over time. Any profits are, by definition, equity, and thus, your money, and thus, every bit as real as the money you started with.

The other side of this coin is the mistaken belief that an unrealized loss isn’t as bad as an actual loss. The thinking here is that it’s only a “paper” loss until you sell. In truth, this is reverse of the exact same line of thinking outlined above and is faulty for all the same reasons. What it can (and often does) lead to is a reluctance to sell when you should, in order to exit a position gracefully and cut your losses.
Reject this kind of thinking (in either direction). It’s getting in your way.