Very important if you want to succeed in trading
Peace be upon you ..
I will talk in the article about two specific points, which are
1- The safe percentage for entering trades from the capital.
2- The profit to loss ratio.
It is noted that many beginner traders do not care about capital management .. I read a saying from a time .. that stock markets attract a certain type of people .. and that it does not appeal to the type that, if they learned, could profit from it ..
The explanation is that exchanges attract those who seek quick profits, and most of these people lose their money quickly.. and the other type that gradually builds their capital usually started in steps to build their capital in other projects and does not care about changing their interests because they are aware of the risks... this explains why only 5% of traders can continue and earn.
The important thing.. the general understanding among traders is that capital management means entering with 10% of the account.. this is a completely wrong understanding.
1- The safe percentage for entering trades from capital:
The intended meaning here of 10%.. is not the amount you can enter with.. but it is the amount you will lose if you exit losing from the trade.. let's talk in numbers..
Let's assume the account contains 10000 dollars.. the wrong understanding says that we cannot enter with more than one lot.. which equals 10% of the account.
The correct understanding requires analysis a bit more.. let's assume you are going to buy the euro from 1.2650.. and you expect (based on your analysis) that the euro will not drop to 1.2620.. that's 30 points.. here you should calculate how many lots you can enter.. which if you lose, you lose 10% of the account.
We start gradually.. if we enter with one lot.. then it would be 30 points × 10 dollars per point = 300 dollars.. this equals 3% of the account.. so here we should enter with more than one lot.. 2 lots for example?!.. 30 points × 20 dollars per point = 600.. that means 6%.. still, you find that based on the proper management of capital, you should enter with 3 lots, not just one lot in this trade.. I think no one should be greedy for more than that.. meaning if you made 40 points only.. you would earn 40 points × 30 dollars per point = 1200 dollars.. which equals 12% of the account in one trade!!!.
What do we benefit from the previous example..
1- We always hear that the successful trader calculates the loss before the profit.. do you know why he calculates it?!
2- To use sound capital management.. a specific stop-loss must be used.. stop-loss is not something we like or dislike.. it is a fundamental principle of capital management, otherwise you are not using a defined system and you are betting with your money.. and hoping the market moves in your direction.
If you used 10% of your capital in one trade, it means that if -God forbid- you entered 10 losing trades.. you would be out of the market.. therefore, the proper percentage is from 2-3% and a maximum of 6%.
We have another pause with the second point so that the topic doesn't get too long and boring.. and to clarify the reason why experts say that capital management equals 50% of the reasons for success, alongside having a sound trading strategy...
