Having a sound
money management strategy is very important in order to avoid the risk
of ruin from losing streaks and drawdowns.
However, please
bear in mind that although you might have implemented strict money management
rules, you still cannot avoid drawdown at all. Drawdowns are inevitable.
Therefore,
you need to know how to stop the drawdowns, so as to avoid the risk of ruin and
allow you to survive a period of losing streaks and drawdowns.
However, the
good news is, to stop a drawdown is simple. All you need to do is just stop
trading....
Saturday, February 13, 2021
Monday, December 21, 2020
Things to Consider in Setting Money Management Rules – Part 3: HOW LONG YOUR CAPITAL CAN LAST
In
setting money
management/position sizing rules, you should also consider:
1) How long
your capital can last, or
2) How long
your account balance will drop to the risk tolerance you’re willing to take after going
through a series of successive losing steaks.
The answers
to these questions will depend on:
* The initial
capital/account balance
* How much to
risk per trade
* The
percentage risk tolerance (for Qtn 2)
Suppose
your...
Thursday, February 5, 2015
Things to Consider in Setting Money Management Rules – Part 2: RISK TOLERANCE
In setting a suitable money management, you should also consider the maximum drawdown you are willing to accept, which depend on your risk tolerance.
In this case, do take into account the reasonable percent return required to recover to breakeven when you experience a certain percent of losses (drawdown), as discussed in the previous post.
Then, set money management rules based on your risk tolerance (expressed in terms of percentage of the total...
