Losses is a part and parcel of trading. The trick here is to be able to limit your losses and find the appropriate money managing strategies to suit a situation.
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Money management not a guarantee of sure fire success and high profits but is an assurance against mounting losses in a difficult market. At the same time you need to keep an eye on the volatility of the stock and how much money needs to be put at risk on any one position
3/10
What Is the Fixed Fractional Model?
Fixed fractional or fixed risk is a money management strategy where the risk is restricted to a fixed percentage of the account. Only a fixed part or percentage of the account capital gets exposed to risk.
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Pros Of the Fixed Fractional Model
The ability of this model to capitalize earnings is borne by the compounding effect. In winning streaks the position size begins to increase. But in losing streaks the size of the trades reduces.
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Cons Of the Fixed Fractional Model
This model is mostly suitable for larger accounts.
With the low risk percentage it does not leave much room for making a bigger move with smaller lot sizes. With small capital it will take much longer time to grow account.
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What Is Fixed Lot or Fixed Ratio Money Management?
This is a money management technique that helps compound returns with an increase in the lot size when the account sees growth. This is widely practiced models where a trader sets the lot numbers to trade per position.
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Pros Of the Fixed Lot Model
This is best suitable for smaller accounts to grow account faster.
The fixed lot model is fairly straightforward and even novice traders can grasp it easily. It is also relatively easy to manage unlike some of the more complex alternatives.
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Cons Of the Fixed Lot Model
The periodic withdrawals from the account reduce the potential to use the additional capital to have a healthy capital and build on incremental profits. With larger accounts the position size can become unwieldy and open to higher risks.
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Conclusion
The idea is to consider the commitment size of capital and never place all of your money in a single trade or there could be a risk of losing everything. You should also implement an approach that fits your style of trading.
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You shouldn’t be concerned about portfolio returns every now and then. Of course you have to check at some times, But looking at your portfolio returns too often can be detrimental too.
In a market crisis, negative news causes anxiety and fear. In such times looking at the falling value of your portfolio can only add to that anxiety.
The opposite happens when the market is rallying; you feel like you have made all the right choices.
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You can’t really compare the portfolio return to your return objective on a daily basis, because your goal is likely to be unchanged for a while. Hence, a daily comparison says nothing about whether your portfolio will be able to achieve what it has been set to do.
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Calculated risk-taking is defined as the skill of making decisions based on incomplete information and unknown future.
The skill requires the ability to act decisively based on all options available while filtering the decision making through the process of risk management
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Calculated risk questions:
1. What will be gained if maximum success is achieved?
Our elders often use stories and incidents from Ramayana to show us the right path in life. But epic Ramayana can be equally valuable in learning lessons on #investment and financial planning.
Ram chased the golden deer & Laxman also went out. But before leaving Sita in jungle, Lakshman drew a line and requested Sita not to cross that line. But then Ravan arrived as a saint trapped Sita to cross the line, and kidnapped her.
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The lesson here is not to chase anything and everything that looks attractive. Today many investors are getting lured into #investing in direct stocks based on hot tips cryptocurrencies, covered bonds, and so on that promise them the moon.
It is important to remain calm and not overreact to the market. You can’t predict what will happen with your trades.
So try to stay positive even when things aren’t going as planned. This way its easier for your emotions not to get in the way of your trades.
2/10
Always Have a Strategy
In trading it’s essential to always have a solid plan in place.
It is never easy knowing what will happen next, so stay positive and not focus too much on the short-term nature. Always be prepared with your strategies for whatever may come up!
Let’s explore 12 qualities that good traders have, knowingly or unknowingly these qualities are the reason they thrive in the market and are net-profitable in the long term, while others lose their shirt sooner or later
We don’t know when trading losses are going to hit us. Good traders understand this, and they know that managing risk not only preserves their capital, it also protects their emotional well-being.
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#2- Good Traders Know How To Manage Their Emotions
Good traders understand how their emotions can influence their trading performance. They have mindset management routines like mindfulness, physical exercise, or journaling.