Capital management strategies
When trading Fixed Time Trade, you can only cut your loss by stop trading. Each order is set, there are two ways for you, one for loss all and one for winning. After each transaction will give you a different emotion that makes you mess with your capital, leading to bad outcomes. Capital management strategies will help you out.
From the experience of older players, this article will guide you on how to manage your capital to avoid emotional problems.
Updated: Currently, Olymp Trade allows stop loss by canceling the order. You will receive the difference depending on the cancellation time.
Compound interest
Compound interest is an all-exchange, progressive form where you are dealing constantly with both capital and interest.
For an example scenario, if you trade with a capital of $10 with a payout of 90%, your earnings will progress as follows:
| Times | Wins |
|---|---|
| 1 | $19 |
| 2 | $36.1 |
| 3 | $68.59 |
| 4 | $130,321 |
| 5 | $247.6 |
| 6 | $470 |
| 7 | $893 |
| 8 | $1698 |
With this method, even if you lose at 8th, you will only lose your $10. And you only need to win 2 times in a row to payback.
This method is suitable for trading with low capital and you have a chance of winning in hand.
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This method is not psychologically heavy because it starts with very small amounts.
But in fact, the problem is that you do not preserve the money you make. You may have a relaxed mindset, but you will always fail if you do not know where to stop. So consider your goals when you want to use this capital management strategy.
Martingale strategy
Martingale is a recover capital management strategy that is seen as an effective capital recovery method. However, it only works if you have a huge amount of capital at over $1000. https://traderrr.com/martingale-trading-strategy-trading-definition-and-uses/
The rule of thumb is that you double your stake every time you lose to always get at least $1 in profit. Because it is a progressive form, if you lose, you will lose a lot, however, your rate of return is very high. Below is an example with 80% Payout:
With the starting $1, if you lose 7 times in a row you lose $1093. However, the possibility of losing 7 times in a row is really low, according to calculations it will only be at 0.4%. The rate decrease to 0.2% at the 8th time, 0.1% at the 9th time. So this can also be called a safe way.
But many traders say this approach not working. This method will withdraw your capital very quickly if the first losing trade costs a lot of money. Because of that, as mentioned above, this method is only for people with large-cap.
For professional traders, losing orders is a surprise in the data rather than a wrong analysis. So, Martingale is just a way to recover your capital.
The importance of capital management strategies
No matter where you trade money, capital management strategies are always a necessary strategy. You should bet in good times and stop at times with a low probability of winning.
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A set of capital management rules will help you avoid unnecessary losses. As long as you focus on opening orders that the signal definitely wins, the meaning of capital management can really come into play.
Capital management strategies
Payback Period
Payback Period indicates the length of time in which you can pay back your initial capital.
The formula is: Time = (Total investment)/(Expected earnings per day)
This method is based on the rule The Range Rule of Thumb, based on the payback value you can calculate the feasibility of the position. From there, you will decide the value and the most effective betting time.
ARR
The Accounting Rate of Return helps to overcome the disadvantages of the Payback Period. The rate of return is expressed as a percentage of the daily return for a particular investment.
In Fixed Time Trade, this means no trade when the rate of return is below 80%. If the prediction model gives a high probability of winning, it should be considered because each losing order increases the trading time to recover several times.
Specific formula: ARR = (Average return)/(Average investment value)
NPV
Net Present Value is the difference between the present value of cash inflows and the present value of cash outflows over a period of time. This method calculates the actual profit the trader will achieve after amortizing all of the initial costs and uses it to decide the amount and whether the transaction should be made.
Formula: NPV = Profit value – Cost value
This method will determine whether you should continue to invest in Olymp Trade when NPV is growing negatively. You should consider how much the investment should be if you want to continue.
This method will help you think carefully about your current investment.
