Monday, 7 March 2016

Capital management.

I realised I have not written since my last post in Dec. The only reason I could think of is that I am getting lazy but the other reason could be that I was packed with things to do and settle before March.  But that is just what it is... an excuse. As mentioned before, I had started classes from March onward so I will post as frequently as possible. Therefore, this is a post for Mar.

Recently I had a meeting with my friend and realised that there was a need to revisit the topic of trade size with him. He told me that he was having big up and down moves in his portfolio. After reviewing the strategy he used, I found the main reason for the big fluctuation in his account was the draw down of his strategy. Draw downs will occur regardless of the type of strategy used. While I was conversing with him regarding the draw downs, I realised that I could also use with the reminder to be strict with my rules.

Last year I lost nearly 40% of my capital because of my poor decisions. I decided to wait and not cut losses when it was signaled by my strategy. The losses were piling up before I finally decided to cut loss. If I had followed my rules and cut loss when it was due, I would not have to spend so much time since then trying to recover the accounts.

Having ups and downs are common in the market. Nothing is 100% profitable without some losses. It is how we manage the losses that ultimately show in our accounts. I got too overconfident and decided to ignore my rules and ended up with a more bloody account than I would have gotten if I had been more disciplined.