Lesson #2 – Preserve Capital at All Costs
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Subscriber, Lesson #2 – Capital Preservation
Normal false EN-AU MicrosoftInternetExplorer4 Normal false EN-AU MicrosoftInternetExplorer4 PRESERVING YOUR CAPITAL is the name of the game. As an investor or trader your number one job is
to manage risk, so you can always live to fight another day if things don’t work out as planned. As a general rule, we suggest your maximum loss on any one trade should never be more than 15-20% of the capital employed on that trade, and you should never put more than 20-25% of your entire capital into one trade or investment.
The more you lose, the more you must make to back to get back to break-even
point. The grid below shows you why we never want to lose more than 10% on a single trade.
/* Style Definitions */ /* Style Definitions */ In other words, if you lose invest $10,000 in a stock and lose 20%, that’s a $2,000 loss.In order to make back that $2,000, you need to invest your remaining capita of $8,000 and make a profit of 25%. The more you lose, the less capital you have and therefore the bigger the profit you need to make in order to recoup your initial capital.
That’s why we always say, "cut your losses quick" and "use stop losses".
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