Capital management in trading aims to exist

The first goal in capital management is to ensure survival first and foremost. You need to avoid the risks of getting you out of trading. The second goal is a gradual income, the third goal is to increase profit margins - but survive first.

The losers often put all their capital into one trading. They continue to trade the same volume or above that level. Most losers try to get out of the hole they've dug. Good financial management helps you get out of that hole in the first place.

The deeper you sink, the harder it will be for you to escape. If you lose 10%, you need 11% to get back to where you started, but if you lose 20% you need 25% to get back to the same level. And if you lose 40%, you need 67% back. And with a 50% loss, you need 100% to get it back.

Get rich slowly with trading through capital management

New people entering the trading field often try to get rich quickly. They may win in the short term, but in the long run, they will return all to the market because of the big risks.

Someone who makes 25% of annual profits can become the king of Wall Street. A trader who doubles their capital for a year is considered a star in this industry. If you make 30% of your profits a year, make sure people bring money to you to manage (compare with savings at a bank for interest, especially in economic settings. The current).

How much is the risk?

Most traders are killed by one of two bullets: carelessness and emotion. A trader overcomes carelessness and achieves a certain level of success, when his confidence increases, he will lift his head from the trench - and the second bullet appears. Confidence made him greedier, he began to increase the risk in a trade, and constant losses would put him out of the fight.

A professional does not allow a loss of a small percentage of their capital in a trade.

Tests show that the maximum risk that a trader can accept a loss in a trade is 2% of their capital. This limit includes both commission and slippage. If you have an account of $ 2000, you shouldn't risk more than $ 40 in every trade.

Most amateurs shake their heads when they hear this. Many of them have small capital and the 2% rule shatters their dream of getting rich quick. Most professionals think 2% is too high. They don't allow themselves to risk more than 1% to 1.5% of their capital per trade.

The 2% rule helps you avoid major losses the market can cause to your account. Even a series of 5 or 6 losses in a row won't knock you out of the market.

Every time you consider a trade signal, check your stop loss if the stop is greater than 2% of your capital - ignore the trade signal, waiting for a less risky entry. Waiting can reduce your excitement, but the potential for profit will be greater.


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