I have many small wins and a few big losses. My winning ratio is over 80% yet I’m in the negative territory. Big losses will kill your account quickly and small wins will do little to pay for those losses. Looking at the below chart you will see
DON’T LOSE MONEY
IF YOU LOSE MONEY THEN LOSE LITTLE
People psychologically connect a 50% loss with a 50% gain to break even.
if you start with $100K fully invested, with the market dropping 50% first and then gaining 50% from there while remaining fully invested, then you’re down $25K. Martingale System = what if you were to add $100K when you are down? Then you are ahead of the game by $25K.
( What if the market drops 50% -> you add 100k, then the market drops another 50%? then you lose 125K instead of 75k.
What if it keeps going down and you run out of money? then you will be wiped out. )
Martingale System works only for people with unlimited resources.
Consider the opposite ordering of the moves: the market gaining 50% first, then dropping 50%. Similarly, if you fully invested, you end up down $25K. But what if you take half your stake out at the top? Then you are ahead of the game by $12.5K. Or you could be 50K up if you sell everything at the top.
Nobody could pick top & bottom (perhaps by luck one could do it once in a while). When you’re up, take half off. Then move your stop to break even for the rest. Let profit runs.
My problem: I can’t cut off losers. I’m in trades with terrible risk/reward ratios. I’m looking for action if there is no trade. I’m doing it for excitement.