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There are no fixed rules when it comes to trading, and everyone follows their own strategies and plans. However, there is an important concept that everyone should keep in mind: what matters is what you lose, not what you gain. If a trader builds up his capital and then goes on to risk everything in one trade and lose 100% of his funds, he is not a winner. This is why today we are going to look at the question of the ideal amount of investment and the reasons for this amount.
Long-term investment and savings
Investing and saving can be a way to increase income over time and the amount of investment can depend on the investor's age, income, determination and other factors. . When it comes to long-term investing, there are different data on the basis of which specialists give advice. But the figure considered appropriate by many experts for long-term savings or investing is 10-15% of annual income. Having said that, this is an amount that can be put into savings, but it is certainly not the amount to be traded with. Unlike savings, trading is very risky and can lead to losses. Let’s see what could be the right amount of investment for trading.
Amount of investment in trading
When it comes to trading, there is one rule, that of risk management, which is perhaps the most important. If a trader continually loses a significant portion of his trade balance, regardless of the payments he makes, very soon there will be nothing left of his capital. It’s a matter of simple math. Trading with 10 to 15% of the capital could lead to substantial losses which will be difficult to recover from.
According to professional traders, the optimal and balanced amount to invest in a trade is 1 to 3% of the trader's capital. For example, if your deposit is $ 100, an investment in a trade should not exceed $ 3 for a balanced risk management strategy. But that doesn't mean that this amount should stay fixed as your balance grows. Investment is always a percentage of capital, so if capital increases, the amount of investment increases proportionately.
Another way to apply this rule is, for example, to withdraw from trading as soon as the amount of the loss approaches 1 to 3%. However, this is more difficult to control, unless a stop loss level is set, but even then it is easy to get carried away, so cautious traders will stick to an amount instead. less investment.
Advantages and disadvantages
Why is this approach favored by experienced traders? This rule helps the trader manage the amount of losses and prevents him from losing all of his capital in one trading session. No trader wins every time and investing only a small percentage of the balance is a good way to deal with potential losses.
However, this rule can work against some trading approaches like Scalping, which is why traders whose trading style depends on changes in the amount of investment should think about their trading plan in advance. and set their own risk management rules.
Note that even with a lower investment amount, the trader may still suffer losses, so it is necessary to combine it with other risk management techniques.
Source: IQOption blog (blog.iqoption.com) 2020-08-03 10:53:10
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