Trading Strategy: Preserve your capital!

trading strategy preserve capital

Little emphasis is placed on the paramount importance of capital (the account) for anyone who wants to approach the ever dangerous world of trading.  Often, the logic is as such: if I earn $100 a (business) day, over a month I’ll have $2,000, and if I then trade with two accounts instead of one, I’ll have $4,000 etc…Paper millionaires.

If your account is the cow, then the money being traded is the milk.But especially in the initial stages, you must have absolute humility and always have the cow in mind. If there is no cow, there is no milk. You have to start the house with the basics, not the roof.

We have discussed numerous trading strategies, but when starting out in the world of trading I can only stress one single clear objective: preserving your capital. It’s so obvious, but if you don’t start with this simple principle in mind, you’ll never get to the end. You will be forced to finish when you had not even started.

Let’s say you have a boat and your main source of income is to distribute goods around the world with your boat. Surely, you will look for ways to navigate that allow you to reach destinations more efficiently, or you will be up to date with the latest technologies that allow you to optimize the cargo on board.

But what you will not think of in life is navigating shallow waters, areas marked as dangerous or waters in which the presence of pirates is known. You will not do it because you know that without your boat, your business is over. So why do so many people carry out trades that put their capital at risk ?

The most reasonable explanation is found in a personality bias of a significant proportion of those who approach markets: ambition. They are interested in trading to make money, and if that money comes tomorrow, much better than in a month. Then, even without having the necessary skills needed to tackle the markets, they jump into the leverage adventure.

Leverage, on the surface, makes sense. The problem is that you also expose yourself to losing a lot. And by alot, 90% of the time it ends up being “everything.”At its core, the trading mentality is a lottery mentality.

Every trader goes on a losing streak. It is the learning phase, I would say always necessary to reach higher levels. Trading is learned on the basis of hits in the market . The winning strategy to become a consistent trader is to minimize losses in that initial period, and to be able to scale little by little as more knowledge is acquired and, especially, a greater ability to read the market.

This is like almost everything: you start with more or less money and limited knowledge, and you end up with a considerable amount of knowledge, but already with no money to execute them. That’s the thing to avoid anyway. As in races, to finish first, you have to finish first. Preserve your capital, allow yourself to go ahead, and little by little you can go more. Patience is an indispensable quality in this world.

Leave a Reply

Your email address will not be published. Required fields are marked *