Dumb Money Lesson - How To Stay In The Game
Earlier last week the trading hit a high-water mark and within two days was down about 20% from the top. The wife asked me why couldn't take some profits? I tried explaining to her that I'm pretty handy with a plunger, but picking market tops was not in my skill set.
After a couple of hours of deep thought and some more discussion with the wife, we came to a conclusion that when you are in a draw-down that you don't have to maintain the same exposure. At that time, I reduced our exposure by selling some crypto for USDT. This way we could still have some exposure as the markets go against our position, but we would still have some upside exposure for when it turned around.
I have a new trading rule:
- When 10% drawdown from high-water mark reduce position by 1/2.
- When 20% drawdown from high-water mark reduce position by 1/2.
If both these rules are activated then I will have an exposure less than 25%. Let's say we start off with $1,000.00 exposure. The price drops 10%. I will be at $900.00. Reduce by 1/2, leaves an exposure of $450.00. Another 10% drop from high water mark (-$100.00) will have me reducing exposure to $175.00. I will now have an exposure of only 17.5%.
There is curious thing about reducing exposure like this. If the drawdown is linear, for example, let's say it takes 5 days to drop $100.00. It will take me 15 days to reach 20% drawdown. If I didnt implement the rules I would be down $300.00 at the end of 15 days, which is 30%drawdown. 25% versus 42.9%. It is much easier to get back breakeven as you can see in the below table.
| Size of Drawdown | % to Recover |
|---|---|
| 5% | 5.3% |
| 10% | 11.1% |
| 15% | 17.6% |
| 20% | 25.0% |
| 25% | 33.3% |
| 30% | 42.9% |
| 40% | 66.7% |
| 50% | 100.0% |
| 60% | 150.0% |
| 70% | 233.3% |
| 80% | 400.0% |
| 90% | 900.0% |
| 100% | Ruin |
Nothing like a little math to help you stay in the game. At the end of the day if you have no money then you can't trade. If you can't trade then you're not in the game.
If you want to look at some other trade system, please check out @me-tarzan. He has some systems. I don't trade them, but according to his records, he is making some ducketts.
Trading Derivatives?
Crypto Forex Trading
OpenLedger Referrer
your strategy is so simple and so good.....
Though I am new at the crypto market but what I get from these days is a crypto market is all about wait and see.......
Let me give an example...... 1 month ago, I was trying to invest on ripple.... It was .2 then.... And bitcoin was on high.... But I searched what experts said about it. And found it is a flop coin. Then I didn't invest and keep all the money on bitcoin...... And after a month when I look at ripple and found that it jumps over 10 times from then. And what is the situation of bitcoin now.....
So if I am wrong please don't mind....... Because I am too young in this field .
That would be Fear Of Missing Out (FOMO). There are people posting about speculating in crypto. Keep trying to understand. The search for knowledge should always be your number one calling.
yeah obviously ......