Author: chen_h
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After reading the recent "deal Bible" book, money management section which is very instructive, I will extract the contents inside, here to share with everyone.
Money management is a very important part of a deal, is the key weapon to deal warehouse explosion risk. Since your goal is to seek survival in the transaction, you must understand and apply sound money management practices. If you do not, I dare say you have a 90% chance will be lost in the club permanent member, but not receive invitations to the winner of the club only 10% of people to get.
Survive and made huge profits secret is that money management. Appropriate nature of money management is very simple: when the losses in trading, you should reduce your trading risks or position size; on the contrary, when made profits in trading, you should increase your trading risks or position size.
Now we come back to money management, sound financial management has two objectives:
- Survival: Avoid the risk of bankruptcy
- Generate enormous profits: generating a geometric increase in profits
Sound money management will enable you to achieve these goals, if you can reduce the transaction in the case of trading losses (ie reducing position size), increase the transaction (that is, to expand the size of the position) at the time of profit. The real secret to the survival of the enterprise to gain a foothold and made huge profits is reasonable financial management, rather than methods. Expected positive approach can only provide advantages, and good money management will expand this advantage.
There are two forms of money management:
- Martin Heidegger funds management
- · Anti-Martingale money management
Martingale money management
Martingale money management is to sign more contracts in the trading losses, reducing sign such a contract in the profit. It requires players after losing the bet doubled. Martingale money management is based on such a theory, probability improve the profitability of the transaction appears after trading losses, and should use this opportunity to carry out more transactions in the transaction fails.
This strategy is a recipe for disaster. Increase the number of contract after trading losses <that is, to increase the position size) undoubtedly accelerated the risk of bankruptcy, no one said after trading losses will guarantee a certain profit, that is to say after the trading losses and not have a high probability of profit, regardless of profit or loss after usually still have a 50% profit opportunities. In addition, no one can guarantee that you will not suffer long-term continuous trading losses, leading you in advance for bankruptcy. The possibility of Martin Heidegger money management will increase bankruptcies, the best players to give up this strategy
Anti-Martingale money management
Anti-Martingale strategy is correct money management. Anti-Martingale money management will help you survive, because it will lead you reduce the transaction at the time of the loss, the expansion of trade in the profits. Then talk about money management strategies are anti-Martingale system.
Anti-Martingale money management has two key features: a geometric increase in profits and asymmetric leverage. Anti-Martingale strategy during a series of trading profits in a geometric increase in profit, but to generate a series of asymmetric leverage in trading losses or lower profits in the process.
Exponentially growing profits much more than a trading profit did not use the money management strategy. Asymmetric leverage means that losses at the time, the ability to compensate for the loss of decline. That is, if subject to a 10% loss, you will need more than 10% of the proceeds to compensate. If 50% of the financial losses suffered, you will need to make up 100% of earnings.
With the loss of 30%, for example, 43% of the revenue we need to flat, as follows:
Compare different gains and losses as shown below:
Anti-Martingale strategy not only has an asymmetrical leverage, Martingale strategy, too. However, the anti-Martingale strategy to be longer to achieve higher yields, they can only contract with fewer or smaller position size, since anti-Martingale strategy requires fewer contracts signed after loss (smaller position size). It takes more time and effort than maintaining the original transaction size.
