Monday, 7 March 2016

Capital management.

I realised I have not written since my last post in Dec. The only reason I could think of is that I am getting lazy but the other reason could be that I was packed with things to do and settle before March.  But that is just what it is... an excuse. As mentioned before, I had started classes from March onward so I will post as frequently as possible. Therefore, this is a post for Mar.

Recently I had a meeting with my friend and realised that there was a need to revisit the topic of trade size with him. He told me that he was having big up and down moves in his portfolio. After reviewing the strategy he used, I found the main reason for the big fluctuation in his account was the draw down of his strategy. Draw downs will occur regardless of the type of strategy used. While I was conversing with him regarding the draw downs, I realised that I could also use with the reminder to be strict with my rules.

Last year I lost nearly 40% of my capital because of my poor decisions. I decided to wait and not cut losses when it was signaled by my strategy. The losses were piling up before I finally decided to cut loss. If I had followed my rules and cut loss when it was due, I would not have to spend so much time since then trying to recover the accounts.

Having ups and downs are common in the market. Nothing is 100% profitable without some losses. It is how we manage the losses that ultimately show in our accounts. I got too overconfident and decided to ignore my rules and ended up with a more bloody account than I would have gotten if I had been more disciplined.

Loss of Capital
% Needed to Break even
Game Over

Above is a table to follow depending on how much your portfolio decline by. By dropping 40%, I would need to make my remaining capital work 66.6% in order to break even my account. And if you lose 100%, you will need to deposit fresh funds to continue the journey. And that is how people burn out their accounts.  That’s why you should always actively manage your losers to ensure you cut loss when your rules say so and not wait. This is a painful lesson, but one that I will remember.

Until the next post... :P

Investing Wolf 

Disclaimer: This is not a recommendation to buy or sell any mentioned stocks or securities in this blog. 


  1. Only aspire to mention ones content can be as incredible. This clarity with your post is superb and that i may think you’re a guru for this issue. High-quality along with your concur permit me to to seize your current give to keep modified by using approaching blog post. Thanks a lot hundreds of along with you should go on the pleasurable get the job done. forex signals seven