At 30 feet, the old Kilo-class submarine later submerges to 100 feet, 200 feet, 400 feet, 600 feet, and 800 feet, an explosion occurs, perhaps the batteries were defective? The submarine notices the crunch of extremely high water pressure against the submarine hull. The water comes running. The submarine’s high-tech systems automatically seal the flooded chamber. Luckily, the engine room is intact and the submarine painfully tries to resurface from the depths of the Pacific Ocean. The rest of the compartments are dry and the holders are secure.
You should be wondering if this is a prelude to a short thriller story or an article about money management in commerce. This had to be done dramatically because your money, that is, your capital is like the blood of your body. Your body needs blood to survive; in the trading scenario, your account needs money so that you can survive in the trade, so treat them with great care, as if a lioness mother is taking care of her puppies, without letting them go for a moment.
As a submarine, you have to divide your capital into compartments or equal parts, so that if a compartment is flooded, that is, if a trade goes wrong, your chances of recovery will be good. Remember, no matter how good you are or your method, markets are not always conducive to trade. If you change your changes several times in a short period of time, take a step back and analyze whether the problem is yours, your method, or the markets in general. If it’s with you, of course, trade in smaller quantities until you regain confidence or stay out until you sync with the markets. If the markets are tricky and unmarketable, stay out until you make a sensible appearance again and re-enter.
Do not trade without stop-loss; most experts recommend putting them on the system, some operators write them down on paper and run the operations manually. Do not hold an open position if accessibility to the commercial terminal is an issue.
It’s your idea, what methodology you want to follow. Keep the loss stop at a maximum of 5% in each transaction; as the account size grows, limit it to 1% to 2%. You have to live to trade another day. Change with the amount you like; do not try to imitate others. It has been observed that when crossing the personal threshold, the subconscious mind tries to sabotage the effort, because it is uncomfortable with larger amounts than the norms assigned to the trade. Peter’s Principle comes into play, that is, the person rises to the level of his incompetence. If this happens, reduce the account size and resize similar sizes until you can log in.
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Always keep a record of the amount remaining after each transaction. It’s a barometer on how you’re a trader. Ignore this at your own peril. A growing equity curve suggests that you are on the right track to becoming a successful trader. Remember that the flow of money in trade is equivalent to the flow of blood to the human body. Your survival as a trader ultimately depends on it and should not be taken lightly.
Finally, I would like to thank Dr. Alexander Elder, the legendary professor of merchants who has written books that delve into the various aspects of trade: the mind, method, and money management, according to himself.
Afterlude: The old submarine had done well for itself. After the miraculous escape of the Kilo-class submarine, he retired from the Soviet Navy and began negotiating with his meager retirement benefits. He decided that if he wanted to grow his capital, he had to learn the lessons of his previous vocation. He divided his savings into two parts: 80% put in fixed-income instruments; traded with the remaining 20%. This 20% he divided into 10 parts like the compartments of his submarine. He followed Dr. Elder’s methodology: he did not risk more than 2% of his capital in a single trade and, if he lost 6% of that compartment (trade), he would stop trading during that month. His story grew gradually, as did his tranquility. He would no longer be among the merchants, whose heritage lay at the bottom, caressing the dark depths of the Pacific Ocean.