Protect your gains and grow | stockbee


Protect your gains and grow


They key to survival in this business is simple. Keep drawdowns below 10%.

Some people like to play the hero complex, they like to get in to big drwadowns and come back and go back in to it.

They are primarily motivated by the drama of it and their need to prove that they are heroes.

When they get big draw downs, they spend enormous time coming back to break even and then the cycle repeats.

Your objective is to make big returns with least amount of draw downs. That involves trying to keep gains and then building on them. If you see the trading patterns for last several years on this site you will see that the draw downs are minuscule and recovery from them has been quick and yet the account keeps growing. 

There is no point in making 100k and then giving it all back and also some of your original capital and then trying to come back. It is a waste of energy and time.

Some draw downs are unavoidable, but you must make every effort to keep them small.

In same category falls the often given advice that best thing that can happen to new trader is to loose his entire capital. That is bull shit. If you lose your capital , unless you have ways to rebuild it, you are out of this game. Your number one priority if you are learning to trade should be to protect your capital and learn to make money.

The other big myth in the market is you need to be willing to loose big to make big money, that is again popularized by people who like the drama of big drawdown. Don't fall for that. 

Sucessful trading is about accumulating profits without giving up gains or losing your capital. 


Andy Smith said...

Excellent post! Any thoughts on realized drawdown versus unrealized (where person does not actually sell the losing positions)?

Pradeep Bonde said...

That is even worse.