Scared Money Don’t Make Money – Origin & Key Takeaways

No risk, no reward is probably the best explanation of the phrase “scared money don’t make money”. Members of the hip-hop community widely use this phrase and it is quite popular. Nowadays, the phrase has also gained popularity in the world of trading and investing. But what does scared money don’t make money actually mean? 

In this article, we are going to share the answer to the aforementioned question. We are going to tell you about the origin of this popular phrase and also explain why scared money don’t make money. Let’s begin!

The origin of the phrase “scared money don’t make money”

“Scared money don’t make money” is a quote by Billy Napier. He is the ex-coach of the Univerof Louisiana Ragin Cajuns. He delivered this quote during a halftime interview. Napier’s team was hosting Ohio University. He decided to go for a touchdown instead of the field goal with a few seconds remaining and a few yards to cover. With his team 14-3 up at that time, with a conservative approach, he would have gotten 3 points with his team up by 17-3. Instead, he decided to go for the touchdown and it paid. 

The interviewer asked Napier why he did it. Napier replied, “scared money don’t make money”. The quote got widely popular, especially among the hip-hop community. It even became a part of the lyrics. So, this is the origin of this phrase. But, the question is what does it mean in the world of trading and investing. Let’s see!

Scared money don’t make money as a trading philosophy

High risk, high returns, and no risk, no returns are probably the best explanation for this phrase. As you know, taking risks in life and business is a prerequisite to high rewards. And trading isn’t an exception here. If you don’t risk your money, you won’t be rewarded. It is as simple as that. 

You will find market wizards risking their capitals for rewards. They weren’t afraid of risks and that’s why they were rewarded by the market. Why does scared money don’t make money? Because when you are scared, you may make trading decisions based on your fears instead of making decisions based on analyses. You may also fail to make timely decisions and much more when afraid.

Reasons why scared money DO NOT make money?

Here are some very common reasons why scared money don’t make money.

1. Missing out on opportunities

Being scared of making losses makes you miss out on opportunities, even highly lucrative opportunities. For example, you are seeing a heavy downtrend in the market. It will bring fear and you may feel fear of buying and rightly so because prices are falling. However, you may also feel scared to sell and get out of your position. This will only increase your overall losses. So, you are actually missing out on an opportunity to sell and later buy back when prices reach their lowest points.

Similarly, you may also feel scared to buy when prices reach the lowest levels, even below fair price levels. Again, you are missing out on highly lucrative opportunities just because of your fear. Although it is good to think about losses, thinking too much about it and getting scared is dangerous. Because you must remember that high risks, high rewards. 

2. Cutting short your winning trades

Getting scared also leads you to cut short your winning trades. Letting your winners run while cutting short your losses is a prerequisite to success in trading. However, you don’t do it when scared. Fear makes you don’t allow the market to maximize your profit. Instead of making an unbiased decision to let the market maximize profits, you do the opposite. That means you make biased decisions and lock in the profit you make. 

So, making decisions based on your emotions of fear cuts short your winners. For example, you would have made $3,000 by letting your winners run. However, you cut your winners short after making $1,000. So, you actually miss $2,000 potential profit. It also means you need to make winning trades on a consistent basis to stay profitable and that isn’t possible. And that’s why you don’t achieve success. 

3. Let your losers run

Your fear also leads you to let your losers run. That means you don’t close your position on time and incur huge losses. You keep hoping for a favorable move and don’t make a timely decision to exit your open positions. When you finally make a decision to exit, the market has already done significant damage. Therefore, it is important to control your emotions and make unbiased decisions. 

What are the solutions then?

Scared money don’t make money and that’s why you need to find solutions. Here are a few tips for you to achieve success. 

1. Trading is a very risky arena that is full of challenges, surprises, and uncertainties. The arena puts your entire capital at risk. Therefore, it is imperative to enter this arena with capital you can afford to lose.
2. Always use a good take profit and stop-loss strategy. Let your winners run and cut your losers short with this strategy. Moreover, don’t mess with your strategies just because of your emotions. 
3. Develop and employ proper trading, risk management, and money management strategies. These strategies empower you to stay longer in the game and make substantial profits. 
4. You can also turn to mental exercises such as yoga to improve your control over your emotions.