Whether you have a winning trading strategy or not, there’ll be times where the market won’t favour your trades. This is where the market bounces up and down erratically for the entire month.
Whether you buy or sell, you could end up taking one losing trade after another.
This is called a drawdown for your portfolio.
It is very normal to take 10 losing trades in a row, when the market is volatile (jumpy).
And if you decide to risk 10% of your portfolio per trade, you can lose a huge chunk of your portfolio.
To explain this better. Let’s look at the table on what happens when you risk 10% per trade while you’re going through a drawdown.
Note: It doesn’t matter whether you have a portfolio value of R1,000, R10,000 or even R1,000,000 – It’s all relative.
So let’s say you have a portfolio of R100,000.
The markets are choppy and your first trade ends up a loser. This means you take your first loss of R10,000 (R100,000 X 10%). This leaves your new portfolio value at R90,000.
You then take another trade and end up of a loss of R9,000 (R90,000 X10%). Your portfolio is now sitting at R81,000.
Now if the drawdown continues, where the market continues to be choppy, you’ll see your portfolio drop at a rapid pace.
After 10 losing trades in a row, what was a R100,000 portfolio has dropped to R65,132.16.
I guarantee, once you’ve endured this kind of pain and emotional roller coaster, you’ll quit trading and find it to be a scam.
But that’s why you need to drop your risk and stop being a “man”. Rather consider being a business machine where no emotions, greed and fear are involved.
Right now, you are falling into the same trap as anyone who has EVER placed a bet online...
Do nothing and you will continue to LEAK CASH forever...
But follow the URGENT STEPS I have laid out in this report and you could add R400 - R560+ a week to your sports betting bank
With the 2% rule you can tackle any drawdown
Now let’s paint the exact same scenario with one small difference.
You decide to risk 2% of your portfolio per trade during the drawdown, instead of 10% .
After your first losing trade you’re only down R2,000 of your portfolio, dropping your portfolio to R98,000.
Second losing trade, you only take a R1,960 loss on your portfolio.
After your tenth losing trade in the drawdown, you would only be down R18,292.72 18.29% of your original portfolio.
I will still have over 82% of my portfolio to trade stocks compared to the average joe who would have blown over 65% of theirs.
Not only that but I will feel calm, less stressed and I would have learnt from where I can improve my trading strategy (if need be) and how to minimise my risks even more for the next time I hit a drawdown.
In fact, I’ll even consider risking less of my portfolio to 1% risk per trade until the market environment favours the trading strategy. What ever you must do to preserve, protect and boost your portfolio success – is better done with strict and conservative money management rules.