Greetings to everyone who is only interested in trading, readers of my blog and colleagues in the trading workshop! Today we’ll talk about one of the options for managing your deposit. When we trade in the markets, we reinvesting funds to your deposit. And many of us do not even think about it. Every trader tries to make a profit. But it is the profit made that is the reinvestment of funds. Investing is opening an account with a broker and replenishing the starting balance. But the profit received increases the balance of the deposit. If the profit is not withdrawn, then, in theory, the balance will increase all the time. But is it right to do this? Increasing balance is good. But with an increase in the balance of the deposit, the trader wants to get even more profit. The working lot is increasing.
Market unpredictability and risks
Each trade carries a certain risk of loss. It is almost impossible to predict in advance, with sufficient accuracy, the direction of price movement. Therefore, experienced traders always use limiting stop orders. The maximum allowable risk per trade is calculated. And if the floating loss tends to exceed the specified value, a Stop Loss order is activated. It does not happen that all trades for any trader are only profitable. If this were possible, then there would be no question of correct reinvestment and correct capital management. But the market lives its own life, so trading losses are inevitable. Sometimes, sharp price impulses nullify the deposits of those who ignore money management rules or do not use SL.
Correctly calculated risk
Why risk per trade? There are times when the market gives us good money. A series of winning trades increase the balance. But there are times when everything happens the other way around and one losing trade follows another. If you do not control risks, several consecutive unprofitable transactions can cause significant damage to the deposit. Each trader himself chooses the maximum risk level for his work. Someone thinks that the maximum risk per trade should be no more than 2 – 3%. Sometimes you can hear that a risk of 5% is acceptable. But if we imagine a situation where a series of 5 or 10 consecutive losing trades occurs. With a maximum risk per trade of 5%, the trader will lose half of his money. Experienced traders recommend reducing the risk per trade to 1 – 1.5%.
Reinvesting as it is
From any experienced trader, manager or investor, you can hear that profit must be withdrawn. Thus, we reduce the risk of losing funds in any unforeseen situation. But, the smaller the size of the deposit, the less profit you can get from each transaction, if you strictly adhere to MM. By increasing the size of the deposit, we can afford to increase the working lot of transactions. This will allow you to get more profit, with the same price movement in the right direction. Everything is interconnected. Therefore, it is possible and necessary to increase funds, but at the same time creating an insurance fund for yourself. It is unwise to invest all available money in one account in one market. It is better to diversify funds. If you managed to reinvest the initial deposit by 100%, it is still better to withdraw half of it and invest in another direction. But with all this, strictly adhere to the rules of risk management.
January 8, 2021