đȘMust-learn for leeks: Sharing about position management and the probability of continuous losses!
Many newbies do not understand position management, so here is a brief tutorial
Loss-based position management is a common position management method in trading. The core idea is to determine the size of the trading position based on the preset stop loss price, thereby controlling the risk.
For example:
1. If Zhang San decides to open a position, he first needs to assess his risk tolerance. After analysis, he determines that the maximum loss he is willing to bear is 2% of the total position. (That is, you decide how much money you can lose on this order at most)
2. Next, Zhang San observes the market and decides to set a stop loss point. When the price of the currency falls by 10%, he will choose to close the position and exit the transaction.
Based on the principle of "loss-based position management", Zhang San can now calculate the position of this transaction.
3. Assuming that his total position is $10,000, the maximum acceptable loss is $200 (ie 2%).
Since the stop loss point is set at a 10% drop in price, Zhang San should control the amount of the position within $2,000, so that even if the stop loss point is reached, the loss will not exceed his risk tolerance. (2% of the total position, or $200)
That is: the total position is $10,000, and the fixed loss is 2% (the maximum acceptable loss is $200)
If I go long, the stop loss is 10% of the current market price, then I can only invest a maximum of $2,000. In this way, if the market falls by 10% and hits my stop loss, then my maximum loss is $200 (2% of the total position). This is the position fixed by loss.
This way of opening a position can effectively control the risk, and your maximum loss each time is controllable.
According to this discipline, as long as you set a small loss, you will never blow up your position
Generally, the fixed loss is based on the percentage of the total position. For novice traders, I suggest that each fixed loss is 1~3% of the total position, so that you can live longer.
If you have $10,000 and you set a loss of 2% for each trade, then you need to lose 228 times in a row to lose all the $10,000 (based on the remaining principal being less than or equal to $100).
According to probability, the probability of you losing 228 times in a row is extremely low, which is 0.5 to the power of 228: (0.5^{228}), which is infinitely close to zero.(Original: Am Midnight Starlight)
So donât listen to the bragging of charlatans and unscrupulous self-media, and donât invest heavily at any time. For us, we must protect our bullets to survive long.
For leeks, investing heavily: if you make money, itâs luck, if you lose, itâs what you deserve, and the money you make by luck will be lost by ability. đđ
