CAPITAL PRESERVATION THREAD
If you’re reading this, there is a good chance that you’ve had your arse handed to you by not preserving your capital effectively enough.
If this sounds familiar, read on.
Let’s explore how to preserve your capital 💵
A thread;
👇
If you’re reading this, there is a good chance that you’ve had your arse handed to you by not preserving your capital effectively enough.
If this sounds familiar, read on.
Let’s explore how to preserve your capital 💵
A thread;
👇
You can’t be successful in trading unless you can:
A) Control your emotions;
and
B) Preserve your capital;
You simply CANNOT win in this game unless you learn how to lose like a pro
A) Control your emotions;
and
B) Preserve your capital;
You simply CANNOT win in this game unless you learn how to lose like a pro
You may have a $100, or $1k, or $10k trading account – it doesn’t matter
What does matter is that you stick to strict capital preservation rules that you must follow
Look at the odds of losing ‘x’ amount of trades in 100 trades:
What does matter is that you stick to strict capital preservation rules that you must follow
Look at the odds of losing ‘x’ amount of trades in 100 trades:
As you can see from say a 50% win rate, the odds of losing 8, 9, or 10 trades in a row in a series of 100 trades are still extremely high
I know this as I've personally experienced 7 losses in a row before
Not only can this happen to you, but what about your capital? Let's see:
I know this as I've personally experienced 7 losses in a row before
Not only can this happen to you, but what about your capital? Let's see:
If you were to lose 10 trades in a row while risking 'X' amount, you have the following:
Risk 50% = -99.90% loss
Risk 20% = -89.26% loss
Risk 10% = -65.13% loss
Risk 5% = -40.13% loss
And this happens to people everyday.
People are getting seriously rekt.
Risk 50% = -99.90% loss
Risk 20% = -89.26% loss
Risk 10% = -65.13% loss
Risk 5% = -40.13% loss
And this happens to people everyday.
People are getting seriously rekt.
Also here for reference are the figures that show how much you have to recover to breakeven from a loss:
So, how do you get around this?
Well, you never, ever, should risk more than 1-2% of your capital
But how do you get rick quick?
Forget that.
The aim is to survive until you build and edge that works. Small wins over time
Well, you never, ever, should risk more than 1-2% of your capital
But how do you get rick quick?
Forget that.
The aim is to survive until you build and edge that works. Small wins over time
The 1% Winner
The below example shows:
- 1% risk profile
- Win rate of 0.5
- Aim of 2R per trade
As you can see, you will be up by $817 after 10 trades with this risk profile and win rate
The below example shows:
- 1% risk profile
- Win rate of 0.5
- Aim of 2R per trade
As you can see, you will be up by $817 after 10 trades with this risk profile and win rate
The 2% Winner
The below example shows:
- 2% risk profile
- Win rate of 0.5
- Aim of 2R per trade
As you can see, you will be up by $1,670 after 10 trades with this risk profile and win rate
The below example shows:
- 2% risk profile
- Win rate of 0.5
- Aim of 2R per trade
As you can see, you will be up by $1,670 after 10 trades with this risk profile and win rate
It's not always that easy though.
These figures aren’t fit for everyone though, so you need to know your win ratio to properly use the above table.
Some people are 30% winners, some are 40%, some are 70%. It’s more for illustrative purposes
These figures aren’t fit for everyone though, so you need to know your win ratio to properly use the above table.
Some people are 30% winners, some are 40%, some are 70%. It’s more for illustrative purposes
Example of how this doesn't work
A trader has a 30% win rate, and risks 1% each trade. They are aiming for a 2R each trade
Over the course of 20 trades, the trader has a loss of $504.
To overcome this, the trader can up the “R” that they are aiming for or use the following:
A trader has a 30% win rate, and risks 1% each trade. They are aiming for a 2R each trade
Over the course of 20 trades, the trader has a loss of $504.
To overcome this, the trader can up the “R” that they are aiming for or use the following:
Declining Risk Profile
So what if you’re still getting your arse handed to you every day?
Well, something that I personally use is a graduated decline in your risk profile. See below – same win rate, same R, less loss
$305.94 this method vs $504.26 from previous
So what if you’re still getting your arse handed to you every day?
Well, something that I personally use is a graduated decline in your risk profile. See below – same win rate, same R, less loss
$305.94 this method vs $504.26 from previous
What is the premise of the technique?
What we’ve done in this case is cut our risk in half if we experience four losses in a row.
We DO NOT allow ourselves to graduate back up to our original risk profile until we recover half of our losses from the four losing trades
What we’ve done in this case is cut our risk in half if we experience four losses in a row.
We DO NOT allow ourselves to graduate back up to our original risk profile until we recover half of our losses from the four losing trades
When we recover half of our losses, we then bump ourselves back up to 1% again, or whatever your original risk profile was.
Until you recover these losses, you simply stick to the lower risk profile
Until you recover these losses, you simply stick to the lower risk profile
You can see that with the same amount of trades, the trader who is actively managing their risk with a declining risk profile is better off by $200 compared to the trader who continues to risk 1 %.
This is after the same amount of losses and wins are experienced.
This is after the same amount of losses and wins are experienced.
To recap:
Lose four trades, cut risk in half to 0.5%
Recover half of the losses from the four losers, increase risk profile again to 1%
Manage. Repeat.
Lose four trades, cut risk in half to 0.5%
Recover half of the losses from the four losers, increase risk profile again to 1%
Manage. Repeat.
If you’re still getting smashed on the decreased risk profile after another further four trades, then simply cut your risk in half again to 0.25%
Win half of the losses back, increase risk profile back to 0.5%.
Win half of the losses back again, increase back to original 1%
Win half of the losses back, increase risk profile back to 0.5%.
Win half of the losses back again, increase back to original 1%
It doesn’t sound like much, but compared to a trader risking 50%, 20%, 10%, 5% each trade, you’re going to be able to stay in the game for hundreds, if not thousands of trades using this method.
No more blown accounts.
It’s that simple.
No more blown accounts.
It’s that simple.
How does this help?
Well, it keeps you in the game to allow you to continue to learn, refine, and build your edge without blowing an account.
How long do you want to stay solvent for? It’s your call.
Remember:
You have to learn how to lose like a pro to trade like a winner
Well, it keeps you in the game to allow you to continue to learn, refine, and build your edge without blowing an account.
How long do you want to stay solvent for? It’s your call.
Remember:
You have to learn how to lose like a pro to trade like a winner
Conclusion:
You now know how to stay in the game for hundreds of trades & not blow an account.
No one can tell you how to manage your risk, but I truly hope that this helps you
Use this info as you will, & please share if you think it will help someone!
- Mindset_BTC
You now know how to stay in the game for hundreds of trades & not blow an account.
No one can tell you how to manage your risk, but I truly hope that this helps you
Use this info as you will, & please share if you think it will help someone!
- Mindset_BTC
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