How important is it to protect the principal?

How important is it to protect the principal?

Many investors make losses in the market, or even some people make huge profits, but then come back and lose over time. Let's look at the big reasons.

Ralph Vince, a money management expert, has experimented with 40 PhD students in statistics and has already invested experience as well. And playing a simulation game with a starting $10,000. By the chance of winning this game, he set it at 60% more than half. By trading 100 times, the bet will get and lose the same amount. For example, down to 1,000. If the correct will get 1,000 and the wrong will lose 1,000 as well. When the trade ends 100 times, it turns out that only 2 people win this game in 40 people. Only 2 profit.

Why??????

Some people bet $1 thousand when they run into three consecutive losses. He will lose $3,000 and have $7,000 left. His breakeven will have to go down $3,000 to get all the money back. This is possible because the chance of being wrong is greater from 3 consecutive losses. But this game, the chance is 60%. When you lose again, this means that the money will only have $4,000 left, which has to make a profit of 150%. To get back the capital, which is heavier, which can be exhausted in more and more bets. Or some people go down 2,500 and lose 3 consecutive times, that will leave only $2,500. 300% must be done to equal the capital, um, tired and tired.

All in all, these people are losing because they're taking too many risks and betting.

The problem with the average investor is the size of the portfolio. If you start with too little money, such as 300,000 baht, when you calculate a 2% risk of taking a risk, then you will only lose 6,000 baht. You will be able to buy a very small amount of shares, the return may not be worth the amount, but if you place a total stake of 300 baht, that will lead you to too many bets. In the long run, the loss chances will be more immediate, so the larger portfilo will be more advantageous and manage money management better than that without placing too much.

The next thing is important that we remember when we lose drawdowns (% loss) and how much we have to go down in case to cover back for as much capital (breakeven).

Drawdowns (% loss)

Gain to recovery (% must return profits to equal capital)

5% drawdown requires 5.3% gain to recovery

Draw down 10% to make 11.1% gain to recovery

15% drawdown to 17.6% gain to recovery

20% drawdown to 25% gain to recovery

25% drawdown to 33% gain to recovery

30% drawdown to make 42.9% gain to recovery

40% drawdown to 66.7% gain to recovery

50% drawdown to 100% gain to recovery

60% drawdown to 150% gain to recovery

75% drawdown to 300% gain to recovery

90% drawdown to 900% gain to recovery

Excessive losses each time means that we have to make a huge profit to return as much as capital. For example, we have lost 50%. We have to make 100%. Losses over 50% will give us more opportunities to bet. To return as much as capital risks, we will increase our chances of being losers in the market as well.

In short, making too many bets each time will put us at risk of having to bet more to gain capital, and when you lose, you almost lose the chance to return capital again.

This is why many Xian investors try to protect their capital before making a profit. Many Xian say that if they protect their capital, the profit will follow on their own. But if they lose money, the cost of getting it back is tired. Therefore, we as speculators forget this. Don't be greedy to forget. Don't forget that we must always be right. There is absolutely nothing in the price market. Don't care how beautiful you are, how handsome you are, what surname you drive. Will you starve to death? If you trade today, the market doesn't care about anything.